[Federal Register Volume 66, Number 11 (Wednesday, January 17, 2001)]
[Proposed Rules]
[Pages 3928-3954]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-304]


-----------------------------------------------------------------------

DEPARTMENT OF TREASURY

Internal Revenue Service (IRS)

26 CFR Parts 1 and 54

[REG-130477-00; REG-130481-00]

RIN 1545-AY69, 1545-AY70


Required Distributions from Retirement Plans

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

-----------------------------------------------------------------------

SUMMARY: This document contains proposed regulations relating to 
required minimum distributions from qualified plans, individual 
retirement plans, deferred compensation plans under section 457, and 
section 403(b) annuity contracts, custodial accounts, and retirement 
income accounts. These regulations will provide the public with 
guidance necessary to comply with the law and will affect 
administrators of, participants in, and beneficiaries of qualified 
plans; institutions that sponsor and individuals who administer 
individual retirement plans, individuals who use individual retirement 
plans for retirement income, and beneficiaries of individual retirement 
plans; and employees for whom amounts are contributed to section 403(b) 
annuity contracts, custodial accounts, or retirement income accounts 
and beneficiaries of such contracts and accounts.

DATES: Written and electronic comments must be received by April 17, 
2001. Outlines of topics to be discussed at the public hearing 
scheduled for June 1, 2001, at 10 a.m. must be received by May 11, 
2001.

ADDRESSES: Send submissions to: CC:M&SP:RU (REG-130477-00/REG130481-00) 
room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered Monday through 
Friday between the hours of 8 a.m. and 5 p.m. to: CC:M&SP:RU (REG-
130477-00/REG-130481-00), Courier's Desk, Internal Revenue Service, 
1111 Constitution Avenue NW., Washington, DC. Alternatively, taxpayers 
may submit comments electronically via the Internet by selecting the 
``Tax Regs'' option of the IRS Home Page, or by submitting comments 
directly to the IRS Internet site at: http://www.irs.gov/tax__regs/
reglist.html. The public hearing on June 1, 2001, will be held in the 
IRS Auditorium (7th Floor), Internal Revenue Building, 1111 
Constitution Avenue NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Cathy A. 
Vohs, 202-622-6090; concerning submissions and the hearing, and/or to 
be placed on the building access list to attend the hearing, Guy 
Traynor, 202-622-7180 (not toll-free numbers).

Paperwork Reduction Act

    The collections of information contained in these proposed 
regulations have been reviewed and approved by the Office of Management 
and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. 
3507) under control number 1545-0996, in conjunction with the notice of 
proposed rulemaking published on July 27, 1987, 52 FR 28070, REG-EE-
113-82, Required Distributions From Qualified Plans and Individual 
Retirement Plans, and control number 1545-1573, in

[[Page 3929]]

conjunction with the notice of proposed rulemaking published on 
December 30, 1997, 62 FR 67780, REG-209463-82, Required Distributions 
from Qualified Plans and Individual Retirement Plans.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books and records relating to the collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    This document contains proposed amendments to the Income Tax 
Regulations (26 CFR Part 1) and to the Pension Excise Tax Regulations 
(26 CFR Part 54) under sections 401, 403, 408, and 4974 of the Internal 
Revenue Code of 1986. It is contemplated that proposed rules similar to 
those in these proposed regulations applicable to section 401 will be 
published in the near future for purposes of applying the distribution 
requirements of section 457(d). These amendments are proposed to 
conform the regulations to section 1404 of the Small Business Job 
Protection Act of 1996 (SBJPA) (110 Stat. 1791), sections 1121 and 1852 
of the Tax Reform Act of 1986 (TRA of 1986) (100 Stat. 2464 and 2864), 
sections 521 and 713 of the Tax Reform Act of 1984 (TRA of 1984) (98 
Stat. 865 and 955), and sections 242 and 243 of the Tax Equity and 
Fiscal Responsibility Act of 1982 (TEFRA) (96 Stat. 521). The 
regulations provide guidance on the required minimum distribution 
requirements under section 401(a)(9) for plans qualified under section 
401(a). The rules are incorporated by reference in section 408(a)(6) 
and (b)(3) for individual retirement accounts and annuities (IRAs), 
section 408A(c)(5) for Roth IRAs, section 403(b)(10) for section 403(b) 
annuity contracts, and section 457(d) for eligible deferred 
compensation plans.
    For purposes of this discussion of the background of the 
regulations in this preamble, as well as the explanation of provisions 
below, whenever the term employee is used, it is intended to include 
not only an employee but also an IRA owner.
    Section 401(a)(9) provides rules for distributions during the life 
of the employee in section 401(a)(9)(A) and rules for distributions 
after the death of the employee in section 401(a)(9)(B). Section 
401(a)(9)(A)(ii) provides that the entire interest of an employee in a 
qualified plan must be distributed, beginning not later than the 
employee's required beginning date, in accordance with regulations, 
over the life of the employee or over the lives of the employee and a 
designated beneficiary (or over a period not extending beyond the life 
expectancy of the employee and a designated beneficiary).
    Section 401(a)(9)(C) defines required beginning date for employees 
(other than 5-percent owners and IRA owners) as April 1 of the calendar 
year following the later of the calendar year in which the employee 
attains age 70 \1/2\ or the calendar year in which the employee 
retires. For 5-percent owners and IRA owners, the required beginning 
date is April 1 of the calendar year following the calendar year in 
which the employee attains age 70 \1/2\, even if the employee has not 
retired.
    Section 401(a)(9)(D) provides that (except in the case of a life 
annuity) the life expectancy of an employee and the employee's spouse 
that is used to determine the period over which payments must be made 
may be redetermined, but not more frequently than annually.
    Section 401(a)(9)(E) provides that the term designated beneficiary 
means any individual designated as a beneficiary by the employee.
    Section 401(a)(9)(G) provides that any distribution required to 
satisfy the incidental death benefit requirement of section 401(a) is a 
required minimum distribution.
    Section 401(a)(9)(B)(i) provides that, if the employee dies after 
distributions have begun, the employee's interest must be distributed 
at least as rapidly as under the method used by the employee.
    Section 401(a)(9)(B)(ii) and (iii) provides that, if the employee 
dies before required minimum distributions have begun, the employee's 
interest must be either: distributed (in accordance with regulations) 
over the life or life expectancy of the designated beneficiary with the 
distributions beginning no later than 1 year after the date of the 
employee's death, or distributed within 5 years after the death of the 
employee. However, under section 401(a)(9)(B)(iv), a surviving spouse 
may wait until the date the employee would have attained age 70 \1/2\ 
to begin taking required minimum distributions.
    Comprehensive proposed regulations under section 401(a)(9) were 
previously published in the Federal Register on July 27, 1987, 52 FR 
28070. Many of the comments on the 1987 proposed regulations expressed 
concerns that the required minimum distribution must be satisfied 
separately for each IRA owned by an individual by taking distributions 
from each IRA. In response, Notice 88-38 (1988-1 C.B. 524) provided 
that the amount of the required minimum distribution must be calculated 
for each IRA, but permitted that amount to be taken from any IRA. 
Amendments to the 1987 proposed regulations published in the Federal 
Register on December 30, 1997, 62 FR 67780, responded to comments on 
the use of trusts as beneficiaries. Notice 96-67 (1996-2 C.B. 235) and 
Notice 97-75 (1997-2 C.B. 337) provided guidance on the changes made to 
section 401(a)(9) by the SBJPA. The guidance in Notice 88-38, Notice 
96-67, and Notice 97-75 is incorporated in these proposed regulations 
with some modifications.
    Even though the distribution requirements added by TEFRA were 
retroactively repealed by TRA of 1984, the transition election rule in 
section 242(b) of TEFRA was preserved. Notice 83-23 (1983-2 C.B. 418) 
continues to provide guidance for distributions permitted by this 
transition election rule. These proposed regulations retain the 
additional guidance on the transition rule provided in the 1987 
proposed regulations.
    As discussed below, in response to extensive comments, the rules 
for calculating required minimum distributions from individual accounts 
under the 1987 proposed regulations have been substantially simplified. 
Certain other 1987 rules have also been simplified and modified, 
although many of the 1987 rules remain unchanged. In particular, due to 
the relatively small number of comments on practices with respect to 
annuity contracts, and the effect of the 1987 proposed regulations on 
these practices, the basic structure of the 1987 proposed regulation 
provisions with respect to annuity payments is retained in these 
proposed regulations. The IRS and Treasury are continuing to study 
these rules and specifically request updated comments on current 
practices and issues relating to required minimum distributions from 
annuity contracts.

Explanation of Provisions

Overview

    Many of the comments on the 1987 proposed regulations addressed the 
rules for required minimum distributions during an employee's life, 
including calculation of life expectancy and determination of 
designated beneficiary. In particular, comments raised concerns about 
the default

[[Page 3930]]

provisions, election requirements, and plan language requirements. In 
general, the need to make decisions at age 70\1/2\, which under the 
1987 proposed regulations would bind the employee in future years 
during which financial circumstances could change significantly, was 
perceived as unreasonably restrictive. In addition, the determination 
of life expectancy and designated beneficiary and the resulting 
required minimum distribution calculation for individual accounts were 
viewed as too complex.
    To respond to these concerns, these proposed regulations would make 
it much easier for individuals--both plan participants and IRA owners--
and plan administrators to understand and apply the minimum 
distribution rules. The new proposed regulations would make major 
simplifications to the rules, including the calculation of the required 
minimum distribution during the individual's lifetime and the 
determination of a designated beneficiary for distributions after 
death. The new proposed regulations simplify the rules by
     Providing a simple, uniform table that all employees can 
use to determine the minimum distribution required during their 
lifetime. This makes it far easier to calculate the required minimum 
distribution because employees would
--no longer need to determine their beneficiary by their required 
beginning date, sbull no longer need to decide whether or not to 
recalculate their life expectancy each year in determining required 
minimum distributions, and
--no longer need to satisfy a separate incidental death benefit rule.
     Permitting the required minimum distribution during the 
employee's lifetime to be calculated without regard to the 
beneficiary's age (except when required distributions can be reduced by 
taking into account the age of a beneficiary who is a spouse more than 
10 years younger than the employee).
     Permitting the beneficiary to be determined as late as the 
end of the year following the year of the employee's death. This allows
--the employee to change designated beneficiaries after the required 
beginning date without increasing the required minimum distribution and
--the beneficiary to be changed after the employee's death, such as by 
one or more beneficiaries disclaiming or being cashed out.
     Permitting the calculation of post-death minimum 
distributions to take into account an employee's remaining life 
expectancy at the time of death, thus allowing distributions in all 
cases to be spread over a number of years after death.
    These simplifications would also have the effect of reducing the 
required minimum distributions for the vast majority of employees.

The Uniform Distribution Period

    Under these proposed regulations and the 1987 proposed regulations, 
for distributions from an individual account, the required minimum 
distribution is determined by dividing the account balance by the 
distribution period. For lifetime required minimum distributions, these 
proposed regulations provide a uniform distribution period for all 
employees of the same age. The uniform distribution period table is the 
required minimum distribution incidental benefit (MDIB) divisor table 
originally prescribed in Sec. 1.401(a)(9)-2 of the 1987 proposed 
regulations and now included in A-4 of Sec. 1.401(a)-5 of the new 
proposed regulations. An exception applies if the employee's sole 
beneficiary is the employee's spouse and the spouse is more than 10 
years younger than the employee. In that case, the employee is 
permitted to use the longer distribution period measured by the joint 
life and last survivor life expectancy of the employee and spouse.
    These changes provide a simple administrable rule for plans and 
individuals. Using the MDIB table, most employees will be able to 
determine their required minimum distribution for each year based on 
nothing more than their current age and their account balance as of the 
end of the prior year (which IRA trustees report annually to IRA 
owners). Under the 1987 proposed regulations, some employees already 
use the MDIB table to determine required minimum distributions. Under 
the new proposed regulations, they would continue to do so. For the 
majority of other employees, required minimum distributions would be 
reduced as a result of the changes.
    For years after the year of the employee's death, the distribution 
period is generally the remaining life expectancy of the designated 
beneficiary. The beneficiary's remaining life expectancy is calculated 
using the age of the beneficiary in the year following the year of the 
employee's death, reduced by one for each subsequent year. If the 
employee's spouse is the employee's sole beneficiary at the end of the 
year following the year of death, the distribution period during the 
spouse's life is the spouse's single life expectancy. For years after 
the year of the spouse's death, the distribution period is the spouse's 
life expectancy calculated in the year of death, reduced by one for 
each subsequent year. If there is no designated beneficiary as of the 
end of the year after the employee's death, the distribution period is 
the employee's life expectancy calculated in the year of death, reduced 
by one for each subsequent year.
    The MDIB table is based on the joint life expectancies of an 
individual and a survivor 10 years younger at each age beginning at age 
70. Allowing the use of this table reflects the fact that an employee's 
beneficiary is subject to change until the death of the employee and 
ultimately may be a beneficiary more than 10 years younger than the 
employee. The proposed regulations would allow lifetime distributions 
at a rate consistent with this possibility. Consistent with the 
requirements of section 401(a)(9)(A)(ii), the distribution period after 
death is measured by the life expectancy of the employee's designated 
beneficiary in the year following death, or the employee's remaining 
life expectancy if there is no designated beneficiary. This ensures 
that the employee's entire benefit is distributed over a period 
described in section 401(a)(9)(A)(ii), i.e., the life expectancy of the 
employee or the joint life expectancy of the employee and a designated 
beneficiary.
    The approach in these proposed regulations allowing the use of a 
uniform lifetime distribution period addresses concerns raised in 
comments on the 1987 proposed regulations that the rules are too 
complex. It eliminates the use of two tables and the interaction of the 
multiple beneficiary and change in beneficiary rules. Finally, it 
generally eliminates the need to fix the amount of the distribution 
during the employee's lifetime based on the beneficiary designated on 
the required beginning date and eliminates the need to elect 
recalculation or no recalculation of life expectancies at the required 
beginning date.
    Suggestions have been received that the life expectancy table used 
to calculate required minimum distributions should be revised to 
reflect recent increases in longevity. These proposed regulations 
instead provide authority for the Commissioner to issue guidance of 
general applicability revising the life expectancy tables and the 
uniform distribution table in the future if it becomes appropriate. 
While life expectancy has increased in the 14 years since the issuance 
of the section 72 life expectancy tables, those tables may already 
overstate the average life expectancy of the class of individuals who 
are subject to these required

[[Page 3931]]

minimum distribution rules (qualified plan participants, IRA owners, et 
al.). That is because those existing section 72 tables were derived 
from the particular mortality experience of the select population of 
individuals who purchase individual annuities, as opposed to the 
population who are subject to the required minimum distribution rules. 
In any event, as noted earlier, the new proposed uniform distribution 
period--equal to the joint life expectancy of an individual and a 
survivor 10 years younger at each age--would lengthen the lifetime 
distribution period for most employees and beneficiaries. In fact, the 
new proposed regulations would lengthen that period more for many 
individuals than would an update to reflect recent increases in 
longevity. The IRS and Treasury believe that this lengthening of the 
distribution period for most employees provides further justification 
for retaining the existing life expectancy tables at this time.
    Some commentators suggested that the calculation of required 
minimum distributions include credit for any distribution in a prior 
year that exceeded that year's required minimum distribution. However, 
such a ``credit'' carryforward would require significant additional 
data retention and would add substantial complexity to the calculation 
of required minimum distributions. By using the prior year's ending 
account balance for calculating required minimum distributions, 
distribution of amounts in excess of the required minimum distribution 
has the effect of reducing future required minimum distributions over 
the remaining distribution period to some extent. Accordingly, these 
proposed regulations do not provide for a credit carryforward.

Determination of the Designated Beneficiary

    These proposed regulations provide that, generally, the designated 
beneficiary is determined as of the end of the year following the year 
of the employee's death rather than as of the employee's required 
beginning date or date of death, as under the 1987 proposed 
regulations. Thus, any beneficiary eliminated by distribution of the 
benefit or through disclaimer (or otherwise) during the period between 
the employee's death and the end of the year following the year of 
death is disregarded in determining the employee's designated 
beneficiary for purposes of calculating required minimum distributions. 
If, as of the end of the year following the year of the employee's 
death, the employee has more than one designated beneficiary and the 
account or benefit has not been divided into separate accounts or 
shares for each beneficiary, the beneficiary with the shortest life 
expectancy is the designated beneficiary, consistent with the approach 
in the 1987 proposed regulations.
    This approach for determining the designated beneficiary following 
the death of an employee after the employee's required beginning date 
is simpler in several respects than the approach in the 1987 proposed 
regulations and responds to concerns raised with respect to the effects 
of beneficiary designation at the required beginning date. Under this 
approach, the determination of the designated beneficiary and the 
calculation of the beneficiary's life expectancy generally are 
contemporaneous with commencement of required distributions to the 
beneficiary. Any prior beneficiary designation is irrelevant for 
distributions from individual accounts, unless the employee takes 
advantage of a lifetime distribution period measured by the joint life 
expectancy of the employee and a spouse more than 10 years younger than 
the employee. Further, for an employee with a designated beneficiary, 
this approach provides the same rules for distributions after the 
employee's death, regardless of whether death occurs before or after an 
employee's required beginning date. Finally, in the case of an employee 
who elects or defaults into recalculation of life expectancy and who 
dies without a designated beneficiary, the requirement that the 
employee's entire remaining account balance be distributed in the year 
after an employee's death has been eliminated and replaced with a 
distribution period equal to the employee's remaining life expectancy 
recalculated immediately before death.

Default Rule for Post-Death Distributions

    As requested by some commentators, these proposed regulations would 
change the default rule in the case of death before the employee's 
required beginning date for a nonspouse designated beneficiary from the 
5-year rule in section 401(a)(9)(B)(ii) to the life expectancy rule in 
section 401(a)(9)(B)(iii). Thus, absent a plan provision or election of 
the 5-year rule, the life expectancy rule would apply in all cases in 
which the employee has a designated beneficiary. As in the case of 
death on or after the employee's required beginning date, the 
designated beneficiary whose life expectancy is used to determine the 
distribution period would be determined as of the end of the year 
following the year of the employee's death, rather than as of the 
employee's date of death (as would have been required under the 1987 
proposed regulations). The 5-year rule would apply automatically only 
if the employee did not have a designated beneficiary as of the end of 
the year following the year of the employee's death. Finally, in the 
case of death before the employee's required beginning date, these 
proposed regulations allow a waiver, unless the Commissioner determines 
otherwise, of any excise tax resulting from the life expectancy rule 
during the first five years after the year of the employee's death if 
the employee's entire benefit is distributed by the end of the fifth 
year following the year of the employee's death.

Annuity Payments

    These proposed regulations make several changes to the rules for 
determining whether annuity payments satisfy section 401(a)(9). The 
changes are designed to make these rules more administrable without 
adverse effects on the basic structure and application of the rules. 
The IRS and Treasury are continuing to study and evaluate whether 
additional changes would be appropriate for determining whether annuity 
payments satisfy section 401(a)(9). Some comments were received on the 
annuity rules in 1987, but updated comments that include a discussion 
of current industry practices, products, and concerns would be helpful.
    These proposed regulations provide that the designated beneficiary 
for determining the distribution period for annuity payments generally 
is the beneficiary as of the annuity starting date, even if that date 
is after the required beginning date. Thus, if annuity payments 
commence after the required beginning date, the determination of the 
designated beneficiary is contemporaneous with the annuity starting 
date and any intervening changes in the beneficiary designation since 
the required beginning date are ignored. Second, as requested in 
comments, these regulations extend to all annuity payment streams the 
rule in the 1987 proposed regulations that allows a life annuity with a 
period certain not exceeding 20 years to commence on the required 
beginning date with no makeup for the first distribution calendar year. 
For this purpose, the regulations clarify that only accruals as of the 
end of the prior calendar year must be taken into account in 
calculating the amount of an annuity

[[Page 3932]]

commencing on the required beginning date. Subsequent accruals are 
treated as additional accruals that must be taken into account in the 
next calendar year. Also as requested in comments, the regulations 
provide that, although additional accruals need to be taken into 
account in the first payment in the calendar year following the year of 
the accrual, actual payment in the form of a make-up payment need only 
be completed by the end of that calendar year.
    The permitted increase in annuity payments to an employee upon the 
death of the survivor annuitant has been expanded to cover the 
elimination of the survivor portion of a joint and survivor annuity due 
to a qualified domestic relations order. Further, in response to 
comments, in the case of an annuity contract purchased from an 
insurance company, an exception to the nonincreasing-payment 
requirement in these proposed regulations has been added to accommodate 
a cash refund upon the employee's death of the amount of the premiums 
paid for the contract.
    One of the rules in the 1987 proposed regulations that the IRS and 
Treasury are continuing to study and evaluate is the rule providing 
that if the distributions from a defined benefit plan are not in the 
form of an annuity, the employee's benefit will be treated as an 
individual account for purposes of determining required minimum 
distributions. The IRS and Treasury are continuing to consider whether 
retention of this rule is appropriate for defined benefit plans. 
Similarly, the IRS and Treasury are continuing to consider whether the 
rule permitting the benefit under a defined benefit plan to be divided 
into segregated shares for purposes of section 401(a)(9) is useful and 
appropriate for defined benefit plans.

Trust as Beneficiary

    These proposed regulations retain the provision in the proposed 
regulations, as amended in 1997, allowing an underlying beneficiary of 
a trust to be an employee's designated beneficiary for purposes of 
determining required minimum distributions when the trust is named as 
the beneficiary of a retirement plan or IRA, provided that certain 
requirements are met. One of these requirements is that documentation 
of the underlying beneficiaries of the trust be provided timely to the 
plan administrator. In the case of individual accounts, unless the 
lifetime distribution period for an employee is measured by the joint 
life expectancy of the employee and the employee's spouse, the deadline 
under these proposed regulations for providing the beneficiary 
documentation would be the end of the year following year of the 
employee's death. This is consistent with the deadline for determining 
the employee's designated beneficiary. Because the designated 
beneficiary during an employee's lifetime is not relevant for 
determining lifetime required minimum distributions in most cases under 
these proposed regulations, the burden of lifetime documentation 
requirements contained in the previous proposed regulations is 
significantly reduced.
    A significant number of commentators on the 1997 amendment to the 
proposed regulations requested clarification that a testamentary trust 
named as an employee's beneficiary is a trust that qualifies for the 
look-through rule to the underlying beneficiaries, as permitted in the 
1997 proposed regulations. These proposed regulations provide examples 
in which a testamentary trust is named as an employee's beneficiary and 
the look-through trust rules apply. As previously illustrated in the 
facts of Rev. Rul. 2000-2, 2000-3 I.R.B. 305, the examples also clarify 
that remaindermen of a ``QTIP'' trust must be taken into account as 
beneficiaries in determining the distribution period for required 
minimum distributions if amounts are accumulated for their benefit 
during the life of the income beneficiary under the trust.

Rules for Qualified Domestic Relations Orders

    These proposed regulations retain the basic rules in the 1987 
proposed regulation for a qualified domestic relations order (QDRO). 
Thus, for example, the proposed regulations continue to provide that a 
former spouse to whom all or a portion of the employee's benefit is 
payable pursuant to a QDRO will be treated as a spouse (including a 
surviving spouse) of the employee for purposes of section 401(a)(9), 
including the minimum distribution incidental benefit requirement, 
regardless of whether the QDRO specifically provides that the former 
spouse is treated as the spouse for purposes of sections 401(a)(11) and 
417. This rule applies regardless of the number of former spouses an 
employee has who are alternate payees with respect to the employee's 
retirement benefits. Further, for example, if a QDRO divides the 
individual account of an employee in a defined contribution plan into a 
separate account for the employee and a separate account for the 
alternate payee, the required minimum distribution to the alternate 
payee during the lifetime of the employee must nevertheless be 
determined using the same rules that apply to distribution to the 
employee. Thus, required minimum distributions to the alternate payee 
must commence by the employee's required beginning date. However, the 
required minimum distribution for the alternate payee will be 
separately determined. The required minimum distributions for the 
alternate payee during the lifetime of the employee may be determined 
either using the uniform distribution period discussed above based on 
the age of the employee in the distribution calendar year, or, if the 
alternate payee is the employee's former spouse and is more than 10 
years younger than the employee, using the joint life expectancy of the 
employee and the alternate payee.

Election of Surviving Spouse To Treat an Inherited IRA as Spouse's Own 
IRA

    These proposed regulations clarify the rule in the 1987 proposed 
regulations that allows the surviving spouse of a decedent IRA owner to 
elect to treat an IRA inherited by the surviving spouse from that owner 
as the spouse's own IRA. The 1987 proposed regulations provide that 
this election is deemed to have been made if the surviving spouse 
contributes to the IRA or does not take the required minimum 
distribution for a year under section 401(a)(9)(B) as a beneficiary of 
the IRA. These new proposed regulations clarify that this deemed 
election is permitted to be made only after the distribution of the 
required minimum amount for the account, if any, for the year of the 
individual's death. Further these new proposed regulations clarify that 
this deemed election is permitted only if the spouse is the sole 
beneficiary of the account and has an unlimited right to withdrawal 
from the account. This requirement is not satisfied if a trust is named 
as beneficiary of the IRA, even if the spouse is the sole beneficiary 
of the trust. These clarifications make the election consistent with 
the underlying premise that the surviving spouse could have received a 
distribution of the entire decedent IRA owner's account and rolled it 
over to an IRA established in the surviving spouse's own name as IRA 
owner.
    These new proposed regulations also clarify that, except for the 
required minimum distribution for the year of the individual's death, 
the spouse is permitted to roll over the post-death required minimum 
distribution under section 401(a)(9)(B) for a year if the spouse is 
establishing the IRA rollover account in the name of the spouse as

[[Page 3933]]

IRA owner. However, if the surviving spouse is age 70\1/2\ or older, 
the minimum lifetime distribution required under section 401(a)(9)(A) 
must be made for the year and, because it is a required minimum 
distribution, that amount may not be rolled over. These proposed 
regulations provide that this election by a surviving spouse eligible 
to treat an IRA as the spouse's own may also be accomplished by 
redesignating the IRA with the name of the surviving spouse as owner 
rather than beneficiary.

IRA Reporting of Required Minimum Distributions

    Because these regulations substantially simplify the calculation of 
required minimum distributions from IRAs, IRA trustees determining the 
account balance as of the end of the year can also calculate the 
following year's required minimum distribution for each IRA. To improve 
compliance and further reduce the burden imposed on IRA owners and 
beneficiaries, under the authority provided in section 408(i), these 
proposed regulations would require the trustee of each IRA to report 
the amount of the required minimum distribution from the IRA to the IRA 
owner or beneficiary and to the IRS at the time and in the manner 
provided under IRS forms and instructions. This reporting would be 
required regardless of whether the IRA owner is planning to take the 
required minimum distribution from that IRA or from another IRA, and 
would indicate that the IRA owner is permitted to take the required 
minimum distribution from any other IRA of the owner. During year 2001, 
the IRS will be receiving public comments and consulting with 
interested parties to assist the IRS in evaluating what form best 
accommodates this reporting requirement, what timing is appropriate 
(e.g., the beginning of the calendar year for which the required amount 
is being calculated), and what effective date would be most appropriate 
for the reporting requirement. In this context, after thorough 
consideration of comments and consultation with interested parties, the 
IRS intends to develop procedures and a schedule for reporting that 
provides adequate lead time, and minimizes the reporting burden, for 
IRA trustees, issuers, and custodians in complying with this new 
reporting requirement while providing the most useful information to 
the IRA owners and beneficiaries.
    The IRS and Treasury are also considering whether similar reporting 
would be appropriate for section 403(b) contracts.

Permitted Delays Relative to QDROs and State Insurer Delinquency 
Proceedings

    The regulations permit the required minimum distribution for a year 
to be delayed to a later year in certain circumstances. Specifically, 
commentators requested a delay during a period of up to 18 months 
during which an amount is segregated in connection with the review of a 
domestic relations order pursuant to section 414(p)(7). Commentators 
also requested that a delay be permitted while annuity payments under 
an annuity contract issued by a life insurance company in state insurer 
delinquency proceedings have been reduced or suspended by reason of 
state proceedings. These proposed regulations allow delay in these 
circumstances.

Correction of Failures Under Section 401(a)(9)

    The proposed regulations do not set forth the special rule 
relieving a plan from disqualification for isolated instances of 
failure to satisfy section 401(a)(9) because all failures for qualified 
plans and section 403(b) accounts under section 401(a)(9) are now 
permitted to be corrected through the Employee Plans Compliance 
Resolution System (EPCRS). See Rev. Proc. 2000-16 (2000-6 I.R.B. 518).

Amendment of Qualified Plans

    These regulations are proposed to be effective for distributions 
for calendar years beginning on or after January 1, 2002. For 
distributions for calendar years beginning before the effective date of 
final regulations, plan sponsors can continue to rely on the 1987 
proposed regulations, to the extent those proposed regulations are not 
inconsistent with the changes to section 401(a)(9) made by the Small 
Business Job Protection Act of 1996 (SBJPA) and guidance related to 
those changes. Alternatively, for distributions for the 2001 and 
subsequent calendar years beginning before the effective date of final 
regulations, plan sponsors are permitted, but not required, to follow 
these proposed regulations in the operation of their plans by adopting 
the model amendment set forth below.
    The Treasury Department and the IRS are making the model amendment 
set forth below available to plan sponsors to permit them to apply 
these proposed regulations in the operation of their plans without 
violating the requirement that a plan be operated in accordance with 
its terms. Plan sponsors who adopt the model amendment will have 
reliance that, during the term of the amendment, operation of their 
plans in a manner that satisfies the minimum distribution requirements 
in these proposed regulations will not cause their plans to fail to be 
qualified. In addition, distributees will have reliance that 
distributions that are made during the term of the amendment that 
satisfy the minimum distribution requirements in these proposed 
regulations. The model amendment may be adopted by plan sponsors, 
practitioners who sponsor volume submitter specimen plans and sponsors 
of master and prototype (M&P) plans.
    These proposed regulations permit plans to make distributions under 
either default provisions or under permissible optional provisions. A 
plan that has been amended by adoption of the model amendment will be 
treated as operating in conformance with a requirement of the proposed 
regulations that permits the use of either default or optional 
provisions if the plan is operated consistently in accordance with 
either the default rule or a specific permitted alternative, 
notwithstanding the plan's terms.
    The Service will not issue determination, opinion or advisory 
letters on the basis of the changes in these proposed regulations until 
the publication of final regulations. Until such time, the IRS will 
continue to issue such letters on the basis of the 1987 proposed 
regulations and SBJPA. Although the IRS will not issue determination, 
opinion or advisory letters with respect to the model amendment, the 
adoption of the model amendment will not affect a determination letter 
issued for a plan whose terms otherwise satisfy the 1987 proposed 
regulations and SBJPA. Plan sponsors should not adopt other amendments 
to attempt to conform their plans to the changes in these proposed 
regulations before the publication of final regulations. The IRS 
intends to publish procedures at a later date that will allow qualified 
plans to be amended to reflect the regulations under section 401(a)(9) 
when they are finalized.
    Qualified plans are required to be amended for changes in the plan 
qualification requirements made by GUST by the end of the GUST remedial 
amendment period under section 401(b), which is generally the end of 
the first plan year beginning on or after January 1, 2001, or, if 
applicable, a later date determined under the provisions of section 19 
of Rev. Proc. 2000-20 (2000-6 I.R.B. 553). Many plans have been 
operated in a manner that reflects the changes to section 401(a)(9) 
made by SBJPA and will have to be amended for

[[Page 3934]]

these changes by the end of the GUST remedial amendment period. The IRS 
intends that its procedures for amending qualified plans for the final 
regulations under section 401(a)(9) will generally avoid the need for 
plan sponsors, volume submitter practitioners and M&P plan sponsors to 
request another determination, opinion or advisory letter subsequent to 
their application for a GUST letter. In addition, to the extent such a 
subsequent letter is needed or desired, the IRS intends that its 
procedures will provide that the application for the letter will not 
have to be submitted prior to the next time the plan is otherwise 
amended or required to be amended.
    The model amendment described above is set forth below:

    With respect to distributions under the Plan made in calendar 
years beginning on or after January 1, 2000 (ALTERNATIVELY, SPECIFY 
A LATER CALENDAR YEAR FOR WHICH THE AMENDMENT IS TO BE INITIALLY 
EFFECTIVE), the Plan will apply the minimum distribution 
requirements of section 401(a)(9) of the Internal Revenue Code in 
accordance with the regulations under section 401(a)(9) that were 
proposed in January 2001, notwithstanding any provision of the Plan 
to the contrary. This amendment shall continue in effect until the 
end of the last calendar year beginning before the effective date of 
final regulations under section 401(a)(9) or such other date 
specified in guidance published by the Internal Revenue Service.

Amendment of IRAs and Effective Date

    These regulations are proposed to be effective for distributions 
for calendar years beginning on or after January 1, 2002. For 
distributions for the 2001 calendar year, IRA owners are permitted, but 
not required, to follow these proposed regulations in operation, 
notwithstanding the terms of the IRA documents. IRA owners may 
therefore rely on these proposed regulations for distributions for the 
2001 calendar year. However, IRA sponsors should not amend their IRA 
documents to conform their IRAs to the changes in these proposed 
regulations before the publication of final regulations. The IRS will 
not issue model IRAs on the basis of the changes in these proposed 
regulations until the publication of final regulations. Until such 
time, IRA owners can continue to use the current model IRAs which are 
based on the 1987 proposed regulations under section 401(a)(9). The IRS 
will publish procedures at a later date that will allow IRAs to be 
amended to reflect final regulations under section 401(a)(9).

Proposed Effective Date

    The regulations are proposed to be applicable for determining 
required minimum distributions for calendar years beginning on or after 
January 1, 2002. For determining required minimum distributions for 
calendar year 2001, taxpayers may rely on these proposed regulations or 
on the 1987 proposed regulations. If, and to the extent, future 
guidance is more restrictive than the guidance in these proposed 
regulations, the future guidance will be issued without retroactive 
effect.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It also has 
been determined that section 553(b) of the Administrative Procedure Act 
(5 U.S.C. chapter 5) does not apply to these regulations, and because 
the regulation does not impose a collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. Pursuant to section 7805(f) of the Code, these proposed 
regulations will be submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on their impact on small 
business.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any electronic or written comments 
(preferably a signed original and eight (8) copies) that are submitted 
timely to the IRS. In addition to the other requests for comments set 
forth in this document, the IRS and Treasury also request comments on 
the clarity of the proposed rule and how it may be made easier to 
understand. All comments will be available for public inspection and 
copying.
    A public hearing has been scheduled for June 1, 2001, at 10 a.m. in 
the IRS Auditorium (7th Floor), Internal Revenue Building, 1111 
Constitution Avenue NW., Washington, DC. Due to building security 
procedures, visitors must enter at the 10th street entrance, located 
between Constitution and Pennsylvania Avenues, NW. In addition, all 
visitors must present photo identification to enter the building. 
Because of access restrictions, visitors will not be admitted beyond 
the immediate entrance area more than 15 minutes before the hearing 
starts. For information about having your name placed on the building 
access list to attend the hearing, see the FOR FURTHER INFORMATION 
CONTACT section of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing.
    Persons who wish to present oral comments at the hearing must 
submit written comments and an outline of the topics to be discussed 
and the time to be devoted to each topic (signed original and eight (8) 
copies) by May 11, 2001.
    A period of 10 minutes will be allotted to each person for making 
comments.
    An agenda showing the scheduling of the speakers will be prepared 
after the deadline for receiving outlines has passed. Copies of the 
agenda will be available free of charge at the hearing.

Drafting Information

    The principal authors of these regulations are Marjorie Hoffman and 
Cathy A. Vohs of the Office of the Division Counsel/Associate Chief 
Counsel (Tax Exempt and Government Entities). However, other personnel 
from the IRS and Treasury participated in their development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 54

    Excise taxes, Pensions, Reporting and recordkeeping requirements.

Adoption of Amendments of the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 is amended by adding 
entries in numerical order to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *
    Sec. 1.401(a)(9)-1 is also issued under 26 U.S.C. 401(a)(9).
    Sec. 1.401(a)(9)-2 is also issued under 26 U.S.C. 401(a)(9).
    Sec. 1.401(a)(9)-3 is also issued under 26 U.S.C. 401(a)(9).
    Sec. 1.401(a)(9)-4 is also issued under 26 U.S.C. 401(a)(9).
    Sec. 1.401(a)(9)-5 is also issued under 26 U.S.C. 401(a)(9).
    Sec. 1.401(a)(9)-6 is also issued under 26 U.S.C. 401(a)(9).
    Sec. 1.401(a)(9)-7 is also issued under 26 U.S.C. 401(a)(9).
    Sec. 1.401(a)(9)-8 is also issued under 26 U.S.C. 401(a)(9).* * 
*
    Sec. 1.403(b)-2 is also issued under 26 U.S.C. 403(b)(10).* * *

[[Page 3935]]

    Sec. 1.408-8 is also issued under 26 U.S.C. 408(a)(6) and 
(b)(3).* * *

    Par. 2. Sections 1.401(a)(9)-0 through 1.401(a)(9)-8 are added to 
read as follows:


Sec. 1.401(a)(9)-0  Required minimum distributions; table of contents.

    This table of contents lists the regulations relating to required 
minimum distributions under section 401(a)(9) of the Internal Revenue 
Code as follows:

Sec. 1.401(a)(9)-0  Required minimum distributions; table of 
contents.
Sec. 1.401(a)(9)-1  Required minimum distribution requirement in 
general.
Sec. 1.401(a)(9)-2  Distributions commencing before an employee's 
death.
Sec. 1.401(a)(9)-3  Death before required beginning date.
Sec. 1.401(a)(9)-4  Determination of the designated beneficiary.
Sec. 1.401(a)(9)-5  Required minimum distributions from defined 
contribution plans.
Sec. 1.401(a)(9)-6  Required minimum distributions from defined 
benefit plans.
Sec. 1.401(a)(9)-7  Rollovers and transfers.
Sec. 1.401(a)(9)-8  Special rules.


Sec. 1.401(a)(9)-1  Required minimum distribution requirement in 
general.

    Q-1. What plans are subject to the required minimum distribution 
requirement under section 401(a)(9) and Secs. 1.401(a)(9)-1 through 
1.401(a)(9)-8?
    A-1. All stock bonus, pension, and profit-sharing plans qualified 
under section 401(a) and annuity contracts described in section 403(a) 
are subject to the required minimum distribution rules in section 
401(a)(9) and Secs. 1.401(a)(9)-1 through 1.401(a)(9)-8. See 
Sec. 1.403(b)-2 for the distribution rules applicable to annuity 
contracts or custodial accounts described in section 403(b), see 
Sec. 1.408-8 for the distribution rules applicable to individual 
retirement plans, see Sec. 1.408A-6 described for the distribution 
rules applicable to Roth IRAs under section 408A, and see section 
457(d)(2)(A) for distribution rules applicable to certain deferred 
compensation plans for employees of tax exempt organizations or state 
and local government employees.
    Q-2. Which employee account balances and benefits held under 
qualified trusts and plans are subject to the distribution rules of 
section 401(a)(9) and Secs. 1.401(a)(9)-1 through 1.401(a)(9)-8?
    A-2. The distribution rules of section 401(a)(9) apply to all 
account balances and benefits in existence on or after January 1, 1985. 
Sections 1.401(a)(9)-1 through 1.401(a)(9)-8 apply for purposes of 
determining required minimum distributions for calendar years beginning 
on or after January 1, 2002.
    Q-3. What specific provisions must a plan contain in order to 
satisfy section 401(a)(9)?
    A-3. (a) Required provisions. In order to satisfy section 
401(a)(9), the plan must include several written provisions reflecting 
section 401(a)(9). First, the plan must generally set forth the 
statutory rules of section 401(a)(9), including the incidental death 
benefit requirement in section 401(a)(9)(G). Second, the plan must 
provide that distributions will be made in accordance with 
Secs. 1.401(a)(9)-1 through 1.401(a)(9)-8. The plan document must also 
provide that the provisions reflecting section 401(a)(9) override any 
distribution options in the plan inconsistent with section 401(a)(9). 
The plan also must include any other provisions reflecting section 
401(a)(9) as are prescribed by the Commissioner in revenue rulings, 
notices, and other guidance published in the Internal Revenue Bulletin. 
See Sec. 601.601(d)(2)(ii)(b) of this chapter.
    (b) Optional provisions. The plan may also include written 
provisions regarding any optional provisions governing plan 
distributions that do not conflict with section 401(a)(9) and the 
regulations thereunder.
    (c) Absence of optional provisions. Plan distributions commencing 
after an employee's death will be required to be made under the default 
provision set forth in Sec. 1.401(a)(9)-3 for distributions unless the 
plan document contains optional provisions that override such default 
provisions. Thus, if distributions have not commenced to the employee 
at the time of the employee's death, distributions after the death of 
an employee are to be made automatically in accordance with the default 
provisions in A-4(a) of Sec. 1.401(a)(9)-3 unless the plan either 
specifies in accordance with A-4(b) of Sec. 1.401(a)(9)-3 the method 
under which distributions will be made or provides for elections by the 
employee (or beneficiary) in accordance with A-4(c) of 
Sec. 1.401(a)(9)-3 and such elections are made by the employee or 
beneficiary.


Sec. 1.401(a)(9)-2  Distributions commencing before an employee's 
death.

    Q-1. In the case of distributions commencing before an employee's 
death, how must the employee's entire interest be distributed in order 
to satisfy section 401(a)(9)(A)?
    A-1. (a) In order to satisfy section 401(a)(9)(A), the entire 
interest of each employee must be distributed to such employee not 
later than the required beginning date, or must be distributed, 
beginning not later than the required beginning date, over the life of 
the employee or joint lives of the employee and a designated 
beneficiary or over a period not extending beyond the life expectancy 
of the employee or the joint life and last survivor expectancy of the 
employee and the designated beneficiary.
    (b) Section 401(a)(9)(G) provides that lifetime distributions must 
satisfy the incidental death benefit requirements.
    (c) The amount required to be distributed for each calendar year in 
order to satisfy section 401(a)(9)(A) and (G) generally depends on 
whether a distribution is in the form of distributions under a defined 
contribution plan or annuity payments under a defined benefit plan. For 
the method of determining the required minimum distribution in 
accordance with section 401(a)(9)(A) and (G) from an individual account 
under a defined contribution plan, see Sec. 1.401(a)(9)-5. For the 
method of determining the required minimum distribution in accordance 
with section 401(a)(9)(A) and (G) in the case of annuity payments from 
a defined benefit plan or an annuity contract, see Sec. 1.401(a)(9)-6.
    Q-2. For purposes of section 401(a)(9)(C), what does the term 
required beginning date mean?
    A-2. (a) Except as provided in paragraph (b) of this A-2 with 
respect to a 5-percent owner, as defined in paragraph (c), the term 
required beginning date means April 1 of the calendar year following 
the later of the calendar year in which the employee attains age 70\1/
2\, or the calendar year in which the employee retires from employment 
with the employer maintaining the plan.
    (b) In the case of an employee who is a 5-percent owner, the term 
required beginning date means April 1 of the calendar year following 
the calendar year in which the employee attains age 70\1/2\.
    (c) For purposes of section 401(a)(9), a 5-percent owner is an 
employee who is a 5-percent owner (as defined in section 416) with 
respect to the plan year ending in the calendar year in which the 
employee attains age 70\1/2\.
    (d) Paragraph (b) of this A-2 does not apply in the case of a 
governmental plan (within the meaning of section 414(d)) or a church 
plan. For purposes of this paragraph, the term church plan means a plan 
maintained by a church for church employees, and the term church means 
any church (as defined in section 3121(w)(3)(A)) or qualified church-
controlled organization (as defined in section 3121(w)(3)(B)).

[[Page 3936]]

    (e) A plan is permitted to provide that the required beginning date 
for purposes of section 401(a)(9) for all employees is April 1 of the 
calendar year following the calendar year in which the employee 
attained age 70\1/2\ regardless of whether the employee is a 5-percent 
owner.
    Q-3. When does an employee attain age 70\1/2\?
    A-3. An employee attains age 70\1/2\ as of the date six calendar 
months after the 70th anniversary of the employee's birth. For example, 
if an employee's date of birth was June 30, 1932, the 70th anniversary 
of such employee's birth is June 30, 2002. Such employee attains age 
70\1/2\ on December 30, 2002. Consequently, if the employee is a 5-
percent owner or retired, such employee's required beginning date is 
April 1, 2003. However, if the employee's date of birth was July 1, 
1932, the 70th anniversary of such employee's birth would be July 1, 
2002. Such employee would then attain age 70\1/2\ on January 1, 2003 
and such employee's required beginning date would be April 1, 2004.
    Q-4. Must distributions made before the employee's required 
beginning date satisfy section 401(a)(9)?
    A-4. Lifetime distributions made before the employee's required 
beginning date for calendar years before the employee's first 
distribution calendar year, as defined in A-1(b) of Sec. 1.401(a)(9)-5, 
need not be made in accordance with section 401(a)(9). However, if 
distributions commence before the employee's required beginning date 
under a particular distribution option, such as in the form of an 
annuity, the distribution option fails to satisfy section 401(a)(9) at 
the time distributions commence if, under terms of the particular 
distribution option, distributions to be made for the employee's first 
distribution calendar year or any subsequent distribution calendar year 
will fail to satisfy section 401(a)(9).
    Q-5. If distributions have begun to an employee before the 
employee's death (in accordance with section 401(a)(9)(A)(ii)), how 
must distributions be made after an employee's death?
    A-5. Section 401(a)(9)(B)(i) provides that if the distribution of 
the employee's interest has begun in accordance with section 
401(a)(9)(A)(ii) and the employee dies before his entire interest has 
been distributed to him, the remaining portion of such interest must be 
distributed at least as rapidly as under the distribution method being 
used under section 401(a)(9)(A)(ii) as of the date of his death. The 
amount required to be distributed for each distribution calendar year 
following the calendar year of death generally depends on whether a 
distribution is in the form of distributions from an individual account 
under a defined contribution plan or annuity payments under a defined 
benefit plan. For the method of determining the required minimum 
distribution in accordance with section 401(a)(9)(B)(i) from an 
individual account, see A-5(a) of Sec. 1.401(a)(9)-5 for the 
calculation of the distribution period that applies when an employee 
dies after the employee's required beginning date. In the case of 
annuity payments from a defined benefit plan or an annuity contract, 
see Sec. 1.401(a)(9)-6.
    Q-6. For purposes of section 401(a)(9)(B), when are distributions 
considered to have begun to the employee in accordance with section 
401(a)(9)(A)(ii)?
    A-6. (a) General rule. Except as otherwise provided in A-10 of 
Sec. 1.401(a)(9)-6, distributions are not treated as having begun to 
the employee in accordance with section 401(a)(9)(A)(ii) until the 
employee's required beginning date, without regard to whether payments 
have been made before that date. For example, if employee A upon 
retirement in 2002, the calendar year A attains age 65\1/2\, begins 
receiving installment distributions from a profit-sharing plan over a 
period not exceeding the joint life and last survivor expectancy of A 
and A's beneficiary, benefits are not treated as having begun in 
accordance with section 401(a)(9)(A)(ii) until April 1, 2008 (the April 
1 following the calendar year in which A attains age 70\1/2\). 
Consequently, if such employee dies before April 1, 2008 (A's required 
beginning date), distributions after A's death must be made in 
accordance with section 401(a)(9)(B)(ii) or (iii) and (iv) and 
Sec. 1.401(a)(9)-4, and not section 401(a)(9)(B)(i). This is the case 
without regard to whether the plan has distributed the minimum 
distribution for the first distribution calendar year (as defined in A-
1(b) of Sec. 1.401(a)(9)-5) before A's death.
    (b) If a plan provides, in accordance with A-2(e) of this section, 
that the required beginning date for purposes of section 401(a)(9) for 
all employees is April 1 of the calendar year following the calendar 
year in which the employee attains age 70\1/2\, an employee who dies 
after the required beginning date determined under the plan terms is 
treated as dying after the employee's required beginning date for 
purposes of A-5(a) of this section even though the employee dies before 
the April 1 following the calendar year in which the employee retires.


Sec. 1.401(a)(9)-3  Death before required beginning date.

    Q-1. If an employee dies before the employee's required beginning 
date, how must the employee's entire interest be distributed in order 
to satisfy section 401(a)(9)?
    A-1. (a) Except as otherwise provided in A-10 of Sec. 1.401(a)(9)-
6, if an employee dies before the employee's required beginning date 
(and, thus, generally before distributions are treated as having begun 
in accordance with section 401(a)(9)(A)(ii)), distribution of the 
employee's entire interest must be made in accordance with one of the 
methods described in section 401(a)(9)(B)(ii) or (iii). One method (the 
five-year rule in section 401(a)(9)(B)(ii)) requires that the entire 
interest of the employee be distributed within five years of the 
employee's death regardless of who or what entity receives the 
distribution. Another method (the life expectancy rule in section 
401(a)(9)(B)(iii)) requires that any portion of an employee's interest 
payable to (or for the benefit of) a designated beneficiary be 
distributed, commencing within one year of the employee's death, over 
the life of such beneficiary (or over a period not extending beyond the 
life expectancy of such beneficiary). Section 401(a)(9)(B)(iv) provides 
special rules where the designated beneficiary is the surviving spouse 
of the employee, including a special commencement date for 
distributions under section 401(a)(9)(B)(iii) to the surviving spouse.
    (b) See A-4 of this section for the rules for determining which of 
the methods described in paragraph (a) applies. See A-3 of this section 
to determine when distributions under the exception to the five-year 
rule in section 401(a)(9)(B)(iii) and (iv) must commence. See A-2 of 
this section to determine when the five-year period in section 
401(a)(9)(B)(ii) ends. For distributions using the life expectancy rule 
in section 401(a)(9)(B)(iii) and (iv), see Sec. 1.401(a)(9)-4 in order 
to determine the designated beneficiary under section 401(a)(9)(B)(iii) 
and (iv), see Sec. 1.401(a)(9)-5 for the rules for determining the 
required minimum distribution under a defined contribution plan, and 
see Sec. 1.401(a)(9)-6 for required minimum distributions under defined 
benefit plans.
    Q-2. By when must the employee's entire interest be distributed in 
order to satisfy the five-year rule in section 401(a)(9)(B)(ii)?

[[Page 3937]]

    A-2. In order to satisfy the five-year rule in section 
401(a)(9)(B)(ii), the employee's entire interest must be distributed by 
the end of the calendar year which contains the fifth anniversary of 
the date of the employee's death. For example, if an employee dies on 
January 1, 2002, the entire interest must be distributed by the end of 
2007, in order to satisfy the five-year rule in section 
401(a)(9)(B)(ii).
    Q-3. When are distributions required to commence in order to 
satisfy the life expectancy rule in section 401(a)(9)(B)(iii) and (iv)?
    A-3. (a) Nonspouse beneficiary. In order to satisfy the life 
expectancy rule in section 401(a)(9)(B)(iii), if the designated 
beneficiary is not the employee's surviving spouse, distributions must 
commence on or before the end of the calendar year immediately 
following the calendar year in which the employee died. This rule also 
applies to the distribution of the entire remaining benefit if another 
individual is a designated beneficiary in addition to the employee's 
surviving spouse. See A-2 and A-3 of Sec. 1.401(a)(9)-8, however, if 
the employee's benefit is divided into separate accounts (or segregated 
shares, in the case of a defined benefit plan).
    (b) Spousal beneficiary. In order to satisfy the rule in section 
401(a)(9)(B)(iii) and (iv), if the sole designated beneficiary is the 
employee's surviving spouse, distributions must commence on or before 
the later of--
    (1) The end of the calendar year immediately following the calendar 
year in which the employee died; and
    (2) The end of the calendar year in which the employee would have 
attained age 70\1/2\.
    Q-4. How is it determined whether the five-year rule in section 
401(a)(9)(B)(ii) or the life expectancy rule in section 
401(a)(9)(B)(iii) and (iv) applies to a distribution?
    A-4. (a) No plan provision. If a plan does not adopt an optional 
provision described in paragraph (b) or (c) of this A-4 specifying the 
method of distribution after the death of an employee, distribution 
must be made as follows:
    (1) If the employee has a designated beneficiary, as determined 
under Sec. 1.401(a)(9)-4, distributions are to be made in accordance 
with the life expectancy rule in section 401(a)(9)(B)(iii) and (iv).
    (2) If the employee has no designated beneficiary, distributions 
are to be made in accordance with the five-year rule in section 
401(a)(9)(B)(ii).
    (b) Optional plan provisions. The plan may adopt a provision 
specifying either that the five-year rule in section 401(a)(9)(B)(ii) 
will apply to certain distributions after the death of an employee even 
if the employee has a designated beneficiary or that distribution in 
every case will be made in accordance with the five-year rule in 
section 401(a)(9)(B)(ii). Further, a plan need not have the same method 
of distribution for the benefits of all employees.
    (c) Elections. A plan may adopt a provision that permits employees 
(or beneficiaries) to elect on an individual basis whether the five-
year rule in section 401(a)(9)(B)(ii) or the life expectancy rule in 
section 401(a)(9)(B)(iii) and (iv) applies to distributions after the 
death of an employee who has a designated beneficiary. Such an election 
must be made no later than the earlier of, the end of the calendar year 
in which distribution would be required to commence in order to satisfy 
the requirements for the life expectancy rule in section 
401(a)(9)(B)(iii) and (iv) (see A-3 of this section for the 
determination of such calendar year), or the end of the calendar year 
which contains the fifth anniversary of the date of death of the 
employee. As of the date determined under the life expectancy rule, the 
election must be irrevocable with respect to the beneficiary (and all 
subsequent beneficiaries) and must apply to all subsequent calendar 
years. If a plan provides for the election, the plan may also specify 
the method of distribution that applies if neither the employee nor the 
beneficiary makes the election. If neither the employee nor the 
beneficiary elects a method and the plan does not specify which method 
applies, distribution must be made in accordance with paragraph (a).
    Q-5. If the employee's surviving spouse is the employee's 
designated beneficiary and such spouse dies after the employee, but 
before distributions have begun to the surviving spouse under section 
401(a)(9)(B)(iii) and (iv), how is the employee's interest to be 
distributed?
    A-5. Pursuant to section 401(a)(9)(B)(iv)(II), if the surviving 
spouse dies after the employee, but before distributions to such spouse 
have begun under section 401(a)(9)(B)(iii) and (iv), the five-year rule 
in section 401(a)(9)(B)(ii) and the life expectancy rule in section 
401(a)(9)(B)(iii) are to be applied as if the surviving spouse were the 
employee. In applying this rule, the date of death of the surviving 
spouse shall be substituted for the date of death of the employee. 
However, in such case, the rules in section 401(a)(9)(B)(iv) are not 
available to the surviving spouse of the deceased employee's surviving 
spouse.
    Q-6. For purposes of section 401(a)(9)(B)(iv)(II), when are 
distributions considered to have begun to the surviving spouse?
    A-6. Distributions are considered to have begun to the surviving 
spouse of an employee, for purposes of section 401(a)(9)(B)(iv)(II), on 
the date, determined in accordance with A-3 of this section, on which 
distributions are required to commence to the surviving spouse, even 
though payments have actually been made before that date. See A-11 of 
Sec. 1.401(a)(9)-6 for a special rule for annuities.


Sec. 1.401(a)(9)-4  Determination of the designated beneficiary.

    Q-1. Who is a designated beneficiary under section 401(a)(9)(E)?
    A-1. A designated beneficiary is an individual who is designated as 
a beneficiary under the plan. An individual may be designated as a 
beneficiary under the plan either by the terms of the plan or, if the 
plan so provides, by an affirmative election by the employee (or the 
employee's surviving spouse) specifying the beneficiary. A beneficiary 
designated as such under the plan is an individual who is entitled to a 
portion of an employee's benefit, contingent on the employee's death or 
another specified event. For example, if a distribution is in the form 
of a joint and survivor annuity over the life of the employee and 
another individual, the plan does not satisfy section 401(a)(9) unless 
such other individual is a designated beneficiary under the plan. A 
designated beneficiary need not be specified by name in the plan or by 
the employee to the plan in order to be a designated beneficiary so 
long as the individual who is to be the beneficiary is identifiable 
under the plan as of the date the beneficiary is determined under A-4 
of this section. The members of a class of beneficiaries capable of 
expansion or contraction will be treated as being identifiable if it is 
possible, as of the date the beneficiary is determined, to identify the 
class member with the shortest life expectancy. The fact that an 
employee's interest under the plan passes to a certain individual under 
applicable state law does not make that individual a designated 
beneficiary unless the individual is designated as a beneficiary under 
the plan.
    Q-2. Must an employee (or the employee's spouse) make an 
affirmative election specifying a beneficiary for a person to be a 
designated beneficiary under section 40l(a)(9)(E)?

[[Page 3938]]

    A-2. No. A designated beneficiary is an individual who is 
designated as a beneficiary under the plan whether or not the 
designation under the plan was made by the employee. The choice of 
beneficiary is subject to the requirements of sections 401(a)(11), 
414(p), and 417.
    Q-3. May a person other than an individual be considered to be a 
designated beneficiary for purposes of section 401(a)(9)?
    A-3. (a) No. Only individuals may be designated beneficiaries for 
purposes of section 401(a)(9). A person that is not an individual, such 
as the employee's estate, may not be a designated beneficiary, and, if 
a person other than an individual is designated as a beneficiary of an 
employee's benefit, the employee will be treated as having no 
designated beneficiary for purposes of section 401(a)(9). However, see 
A-5 of this section for special rules which apply to trusts.
    (b) If an employee is treated as having no designated beneficiary, 
for distributions under a defined contribution plan, the distribution 
period under section 401(a)(9)(A)(ii) after the death of the employee 
is limited to the period described in A-5(a)(2) of Sec. 1.401(a)(9)-5 
(the remaining life expectancy of the employee determined in accordance 
with A-5(c)(3) of Sec. 1.401(a)(9)-5). Further, in such case, except as 
provided in A-10 of Sec. 1.401(a)(9)-6, if the employee dies before the 
employee's required beginning date, distribution must be made in 
accordance with the 5-year rule in section 401(a)(9)(B)(ii).
    Q-4. When is the designated beneficiary determined?
    A-4. (a) General rule. Except as provided in paragraph (b) and 
Sec. 1.401(a)(9)-6, the employee's designated beneficiary will be 
determined based on the beneficiaries designated as of the last day of 
the calendar year following the calendar year of the employee's death. 
Consequently, except as provided in Sec. 1.401(a)(9)-6, any person who 
was a beneficiary as of the date of the employee's death, but is not a 
beneficiary as of that later date (e.g., because the person disclaims 
entitlement to the benefit in favor of another beneficiary or because 
the person receives the entire benefit to which the person is entitled 
before that date), is not taken into account in determining the 
employee's designated beneficiary for purposes of determining the 
distribution period for required minimum distributions after the 
employee's death.
    (b) Surviving spouse. As provided in A-5 of Sec. 1.401(a)(9)-3, in 
the case in which the employee's spouse is the designated beneficiary 
as of the date described in paragraph (a) of this A-5, and the 
surviving spouse dies after the employee and before the date on which 
distributions have begun to the spouse under section 401(a)(9)(B)(iii) 
and (iv), the rule in section 40l(a)(9)(B)(iv)(II) will apply. Thus, 
the relevant designated beneficiary for determining the distribution 
period is the designated beneficiary of the surviving spouse. Such 
designated beneficiary will be determined as of the last day of the 
calendar year following the calendar year of surviving spouse's death. 
If, as of such last day, there is no designated beneficiary under the 
plan with respect to that surviving spouse, distribution must be made 
in accordance with the 5-year rule in section 401(a)(9)(B)(ii) and A-2 
of Sec. 1.401(a)(9)-3.
    (c) Multiple beneficiaries. Notwithstanding anything in this A-4 to 
the contrary, the rules in A-7 of Sec. 1.401(a)(9)-5 apply if more than 
one beneficiary is designated with respect to an employee as of the 
date on which the designated beneficiary is to be determined in 
accordance with paragraphs (a) and (b) of this A-4.
    Q-5. If a trust is named as a beneficiary of an employee, will the 
beneficiaries of the trust with respect to the trust's interest in the 
employee's benefit be treated as having been designated as 
beneficiaries of the employee under the plan for purposes of 
determining the distribution period under section 401(a)(9)?
    A-5. (a) Only an individual may be a designated beneficiary for 
purposes of determining the distribution period under section 
401(a)(9). Consequently, a trust is not a designated beneficiary even 
though the trust is named as a beneficiary. However, if the 
requirements of Paragraph (b) of this A-5 are met, the beneficiaries of 
the trust will be treated as having been designated as beneficiaries of 
the employee under the plan for purposes of determining the 
distribution period under section 401(a)(9).
    (b) The requirements of this paragraph (b) are met if, during any 
period during which required minimum distributions are being determined 
by treating the beneficiaries of the trust as designated beneficiaries 
of the employee, the following requirements are met:
    (1) The trust is a valid trust under state law, or would be but for 
the fact that there is no corpus.
    (2) The trust is irrevocable or will, by its terms, become 
irrevocable upon the death of the employee.
    (3) The beneficiaries of the trust who are beneficiaries with 
respect to the trust's interest in the employee's benefit are 
identifiable from the trust instrument within the meaning of A-1 of 
this section.
    (4) The documentation described in A-6 of this section has been 
provided to the plan administrator.
    (c) In the case of payments to a trust having more than one 
beneficiary, see A-7 of Sec. 1.401(a)(9)-5 for the rules for 
determining the designated beneficiary whose life expectancy will be 
used to determine the distribution period. If the beneficiary of the 
trust named as beneficiary is another trust, the beneficiaries of the 
other trust will be treated as having been designated as beneficiaries 
of the employee under the plan for purposes of determining the 
distribution period under section 401(a)(9)(A)(ii), provided that the 
requirements of paragraph (b) of this A-5 are satisfied with respect to 
such other trust in addition to the trust named as beneficiary.
    Q-6. If a trust is named as a beneficiary of an employee, what 
documentation must be provided to the plan administrator?
    A-6. (a) Required minimum distributions before death. In order to 
satisfy the documentation requirement of this A-6 for required minimum 
distributions under section 401(a)(9) to commence before the death of 
an employee, the employee must comply with either paragraph (a)(1) or 
(2) of this A-6:
    (1) The employee provides to the plan administrator a copy of the 
trust instrument and agrees that if the trust instrument is amended at 
any time in the future, the employee will, within a reasonable time, 
provide to the plan administrator a copy of each such amendment.
    (2) The employee--
    (i) Provides to the plan administrator a list of all of the 
beneficiaries of the trust (including contingent and remaindermen 
beneficiaries with a description of the conditions on their 
entitlement);
    (ii) Certifies that, to the best of the employee's knowledge, this 
list is correct and complete and that the requirements of paragraphs 
(b)(1), (2), and (3) of A-5 of this section are satisfied;
    (iii) Agrees that, if the trust instrument is amended at any time 
in the future, the employee will, within a reasonable time, provide to 
the plan administrator corrected certifications to the extent that the 
amendment changes any information previously certified; and

[[Page 3939]]

    (iv) Agrees to provide a copy of the trust instrument to the plan 
administrator upon demand.
    (b) Required minimum distributions after death. In order to satisfy 
the documentation requirement of this A-6 for required minimum 
distributions after the death of the employee, by the last day of the 
calendar year immediately following the calendar year in which the 
employee died, the trustee of the trust must either--
    (1) Provide the plan administrator with a final list of all 
beneficiaries of the trust (including contingent and remaindermen 
beneficiaries with a description of the conditions on their 
entitlement) as of the end of the calendar year following the calendar 
year of the employee's death; certify that, to the best of the 
trustee's knowledge, this list is correct and complete and that the 
requirements of paragraph (b)(1), (2), and (3) of A-5 of this section 
are satisfied; and agree to provide a copy of the trust instrument to 
the plan administrator upon demand; or
    (2) Provide the plan administrator with a copy of the actual trust 
document for the trust that is named as a beneficiary of the employee 
under the plan as of the employee's date of death.
    (c) Relief for discrepancy between trust instrument and employee 
certifications or earlier trust instruments. (1) If required minimum 
distributions are determined based on the information provided to the 
plan administrator in certifications or trust instruments described in 
paragraph (a)(1), (a)(2) or (b) of this A-6, a plan will not fail to 
satisfy section 401(a)(9) merely because the actual terms of the trust 
instrument are inconsistent with the information in those 
certifications or trust instruments previously provided to the plan 
administrator, but only if the plan administrator reasonably relied on 
the information provided and the required minimum distributions for 
calendar years after the calendar year in which the discrepancy is 
discovered are determined based on the actual terms of the trust 
instrument.
    (2) For purposes of determining the amount of the excise tax under 
section 4974, the required minimum distribution is determined for any 
year based on the actual terms of the trust in effect during the year.


Sec. 1.401(a)(9)-5  Required minimum distributions from defined 
contribution plans.

    Q-1. If an employee's benefit is in the form of an individual 
account under a defined contribution plan, what is the amount required 
to be distributed for each calendar year?
    A-1. (a) General rule. If an employee's accrued benefit is in the 
form of an individual account under a defined contribution plan, the 
minimum amount required to be distributed for each distribution 
calendar year, as defined in paragraph (b) of this A-1, is equal to the 
quotient obtained by dividing the account (determined under A-3 of this 
section) by the applicable distribution period (determined under A-4 of 
this section). However, the required minimum distribution amount will 
never exceed the entire vested account balance on the date of the 
distribution. Further, the minimum distribution required to be 
distributed on or before an employee's required beginning date is 
always determined under section 401(a)(9)(A)(ii) and this A-1 and not 
section 401(a)(9)(A)(i).
    (b) Distribution calendar year. A calendar year for which a minimum 
distribution is required is a distribution calendar year. If an 
employee's required beginning date is April 1 of the calendar year 
following the calendar year in which the employee attains age 70\1/2\, 
the employee's first distribution calendar year is the year the 
employee attains age 70\1/2\. If an employee's required beginning date 
is April 1 of the calendar year following the calendar year in which 
the employee retires, the calendar year in which the employee retires 
is the employee's first distribution calendar year. In the case of 
distributions to be made in accordance with the life expectancy rule in 
Sec. 1.401(a)(9)-3 and in section 401(a)(9)(B)(iii) and (iv), the first 
distribution calendar year is the calendar year containing the date 
described in A-3(a) or A-3(b) of Sec. 1.401(a)(9)-3, whichever is 
applicable.
    (c) Time for distributions. The distribution required to be made on 
or before the employee's required beginning date shall be treated as 
the distribution required for the employee's first distribution 
calendar year (as defined in paragraph (b) of this A-1). The required 
minimum distribution for other distribution calendar years, including 
the required minimum distribution for the distribution calendar year in 
which the employee's required beginning date occurs, must be made on or 
before the end of that distribution calendar year.
    (d) Minimum distribution incidental benefit requirement. If 
distributions are made in accordance with this section, the minimum 
distribution incidental benefit requirement of section 401(a)(9)(G) 
will be satisfied.
    (e) Annuity contracts. Instead of satisfying this A-1, the required 
minimum distribution requirement may be satisfied by the purchase of an 
annuity contract from an insurance company in accordance with A-4 of 
Sec. 1.401(a)(9)-6 with the employee's entire individual account. If 
such an annuity is purchased after distributions are required to 
commence (the required beginning date, in the case of distributions 
commencing before death, or the date determined under A-3 of 
Sec. 1.401(a)(9)-3, in the case of distributions commencing after 
death), payments under the annuity contract purchased will satisfy 
section 401(a)(9) for distribution calendar years after the calendar 
year of the purchase if payments under the annuity contract are made in 
accordance with Sec. 1.401(a)(9)-6. In such a case, payments under the 
annuity contract will be treated as distributions from the individual 
account for purposes of determining if the individual account satisfies 
section 401(a)(9) for the calendar year of the purchase. An employee 
may also purchase an annuity contract for a portion of the employee's 
account under the rules of A-2(c) of Sec. 1.401(a)(9)-8
    Q-2. If an employee's benefit is in the form of an individual 
account and, in any calendar year, the amount distributed exceeds the 
minimum required, will credit be given in subsequent calendar years for 
such excess distribution?
    A-2. If, for any distribution calendar year, the amount distributed 
exceeds the minimum required, no credit will be given in subsequent 
calendar years for such excess distribution.
    Q-3. What is the amount of the account of an employee used for 
determining the employee's required minimum distribution in the case of 
an individual account?
    A-3. (a) In the case of an individual account, the benefit used in 
determining the required minimum distribution for a distribution 
calendar year is the account balance as of the last valuation date in 
the calendar year immediately preceding that distribution calendar year 
(valuation calendar year) adjusted in accordance with paragraphs (b) 
and (c) of this A-3.
    (b) The account balance is increased by the amount of any 
contributions or forfeitures allocated to the account balance as of 
dates in the valuation calendar year after the valuation date. 
Contributions include contributions made after the close of the 
valuation calendar year which are allocated as of dates in the 
valuation calendar year.
    (c)(1) The account balance is decreased by distributions made in 
the

[[Page 3940]]

valuation calendar year after the valuation date.
    (2)(i) The following rule applies if any portion of the required 
minimum distribution for the first distribution calendar year is made 
in the second distribution calendar year (i.e., generally, the 
distribution calendar year in which the required beginning date 
occurs). In such case, for purposes of determining the account balance 
to be used for determining the required minimum distribution for the 
second distribution calendar year, distributions described in paragraph 
(c)(1) shall include an additional amount. This additional amount is 
equal to the amount of any distribution made in the second distribution 
calendar year on or before the required beginning date that is not in 
excess (when added to the amounts distributed in the first calendar 
year) of the amount required to meet the required minimum distribution 
for the first distribution calendar year.
    (ii) This paragraph (c)(2) is illustrated by the following example:

    Example. (i) Employee X, born October 1, 1931, is an unmarried 
participant in a qualified defined contribution plan (Plan Z). After 
retirement, X attains age 70\1/2\ in calendar year 2002. X's 
required beginning date is April 1, 2003. As of the last valuation 
date under Plan Z in calendar year 2001, which was on December 31, 
2001, the value of X's account balance was $25,300. No contributions 
are made or amounts forfeited after such date which are allocated in 
calendar year 2001. No rollover amounts are received after such date 
by Plan Z on X's behalf which were distributed by a qualified plan 
or IRA in calendar years 2001, 2002, or 2003. The applicable 
distribution period from the table in A-4(a)(2) for an individual 
age 71 is 25.3 years. The required minimum distribution for calendar 
year 2002 is $1,000 ($25,300 divided by 25.3). That amount is 
distributed to X on April 1, 2003.
    (ii) The value of X's account balance as of December 31, 2002 
(the last valuation date under Plan Z in calendar year 2002) is 
$26,400. No contributions are made or amounts forfeited after such 
date which are allocated in calendar year 2002. In order to 
determine the benefit to be used in calculating the required minimum 
distribution for calendar year 2003, the account balance of $26,400 
will be reduced by $1,000, the amount of the required minimum 
distribution for calendar year 2002 made on April 1, 2003. 
Consequently, the benefit for purposes of determining the required 
minimum distribution for calendar year 2003 is $25,400.
    (iii) If, instead of $1,000 being distributed to X, $20,000 is 
distributed on April 1 2003, the account balance of $26,400 would 
still be reduced by $1,000 in order to determine the benefit to be 
used in calculating the required minimum distribution for calendar 
year 2003. The amount of the distribution made on April 1, 2003, in 
order to meet the required minimum distribution for 2002 would still 
be $1,000. The remaining $19,000 ($20,000--$1,000) of the 
distribution is not the required minimum distribution for 2002. 
Instead, the remaining $19,000 of the distribution is sufficient to 
satisfy the required minimum distribution requirement with respect 
to X for calendar year 2003. The amount which is required to be 
distributed for calendar year 2003 is $1,040.10 ($25,400 divided by 
24.4, the applicable distribution period for an individual age 72). 
Consequently, no additional amount is required to be distributed to 
X in 2003 because $19,000 exceeds $1,040.10. However, pursuant to A-
2 of this section, the remaining $17,959.90 ($19,000-$1,040.10) may 
not be used to satisfy the required minimum distribution 
requirements for calendar year 2004 or any subsequent calendar 
years.

    (d) If an amount is distributed by one plan and rolled over to 
another plan (receiving plan), A-2 of Sec. 1.401(a)(9)-7 provides 
additional rules for determining the benefit and required minimum 
distribution under the receiving plan. If an amount is transferred from 
one plan (transferor plan) to another plan (transferee plan), A-3 and 
A-4 of Sec. 1.401(a)(9)-7 provide additional rules for determining the 
amount of the required minimum distribution and the benefit under both 
the transferor and transferee plans.
    Q-4. For required minimum distributions during an employee's 
lifetime, what is the applicable distribution period?
    A-4. (a) General rule--(1) Applicable distribution period. Except 
as provided in paragraph (b) of this A-4, the applicable distribution 
period for required minimum distributions for distribution calendar 
years up to and including the distribution calendar year that includes 
the employee's date of death is determined using the table in paragraph 
(a)(2) for the employee's age as of the employee's birthday in the 
relevant distribution calendar year.
    (2) Table for determining distribution period--(i) General rule. 
The following table is used for determining the distribution period for 
lifetime distributions to an employee.

------------------------------------------------------------------------
                                                          Distribution
                 Age of the employee                         period
------------------------------------------------------------------------
70...................................................               26.2
71...................................................               25.3
72...................................................               24.4
73...................................................               23.5
74...................................................               22.7
75...................................................               21.8
76...................................................               20.9
77...................................................               20.1
78...................................................               19.2
79...................................................               18.4
80...................................................               17.6
81...................................................               16.8
82...................................................               16.0
83...................................................               15.3
84...................................................               14.5
85...................................................               13.8
86...................................................               13.1
87...................................................               12.4
88...................................................               11.8
89...................................................               11.1
90...................................................               10.5
91...................................................                9.9
92...................................................                9.4
93...................................................                8.8
94...................................................                8.3
95...................................................                7.8
96...................................................                7.3
97...................................................                6.9
98...................................................                6.5
99...................................................                6.1
100..................................................                5.7
101..................................................                5.3
102..................................................                5.0
103..................................................                4.7
104..................................................                4.4
105..................................................                4.1
106..................................................                3.8
107..................................................                3.6
108..................................................                3.3
109..................................................                3.1
110..................................................                2.8
111..................................................                2.6
112..................................................                2.4
113..................................................                2.2
114..................................................                2.0
115 and older........................................                1.8
------------------------------------------------------------------------

    (ii) Authority for revised table. The table in A-4(a)(2)(i) of this 
section may be replaced by any revised table prescribed by the 
Commissioner in revenue rulings, notices, or other guidance published 
in the Internal Revenue Bulletin. See Sec. 601.601(d)(2)(ii)(b) of this 
chapter.
    (b) Spouse is sole beneficiary. If the sole designated beneficiary 
of an employee is the employee's surviving spouse, for required minimum 
distributions during the employee's lifetime, the applicable 
distribution period is the longer of the distribution period determined 
in accordance with paragraph (a) of this A-4 or the joint life 
expectancy of the employee and spouse using the employee's and spouse's 
attained ages as of the employee's and the spouse's birthdays in the 
distribution calendar year. The spouse is sole designated beneficiary 
for purposes of determining the applicable distribution period for a 
distribution calendar year during the employee's lifetime if the spouse 
is the sole beneficiary of the employee's entire interest at all times 
during the distribution calendar year.
    Q-5. For required minimum distributions after an employee's death, 
what is the applicable distribution period?
    A-5. (a) Death on or after the employee's required beginning date. 
If an employee dies on or after

[[Page 3941]]

distribution has begun as determined under A-6 of Sec. 1.401(a)(9)-2 
(generally after the employee's required beginning date), in order to 
satisfy section 401(a)(9)(B)(i), the applicable distribution period for 
distribution calendar years after the distribution calendar year 
containing the employee's date of death is either--
    (1) If the employee has a designated beneficiary as of the date 
determined under A-4 of Sec. 1.401(a)(9)-4, the remaining life 
expectancy of the employee's designated beneficiary determined in 
accordance with paragraph(c)(1) or (2) of A-5; or
    (2) If the employee does not have a designated beneficiary as of 
the date determined under A-4(a) of Sec. 1.401(a)(9)-4, the remaining 
life expectancy of the employee determined in accordance with paragraph 
(c)(3) of this A-5.
    (b) Death before an employee's required beginning date. If an 
employee dies before distribution has begun as determined under A-5 of 
Sec. 1.401(a)(9)-2 (generally before the employee's required beginning 
date), in order to satisfy section 401(a)(9)(B)(iii) or (iv) and the 
life expectancy rule described in A-1 of Sec. 1.401(a)(9)-3, the 
applicable distribution period for distribution calendar years after 
the distribution calendar year containing the employee's date of death 
is the remaining life expectancy of the employee's designated 
beneficiary, determined in accordance with paragraph(c)(1) or (2) of 
this A-5.
    (c) Life expectancy--(1) Nonspouse designated beneficiary. The 
applicable distribution period measured by the beneficiary's remaining 
life expectancy is determined using the beneficiary's age as of the 
beneficiary's birthday in the calendar year immediately following the 
calendar year of the employee's death. In subsequent calendar years the 
applicable distribution period is reduced by one for each calendar year 
that has elapsed since the calendar year immediately following the 
calendar year of the employee's death.
    (2) Spouse designated beneficiary. If the surviving spouse of the 
employee is the employee's sole beneficiary, the applicable period is 
measured by the surviving spouse's life expectancy using the surviving 
spouse's birthday for each distribution calendar year for which a 
required minimum distribution is required after the calendar year of 
the employee's death. For calendar years after the calendar year of the 
spouse's death, the spouse's remaining life expectancy is the life 
expectancy of the spouse using the age of the spouse as of the spouse's 
birthday in the calendar year of the spouse's death. In subsequent 
calendar years, the applicable distribution period is reduced by one 
for each calendar year that has elapsed since the calendar year 
immediately following the calendar year of the spouse's death.
    (3) No designated beneficiary. The applicable distribution period 
measured by the employee's remaining life expectancy is the life 
expectancy of the employee using the age of the employee as of the 
employee's birthday in the calendar year of the employee's death. In 
subsequent calendar years the applicable distribution period is reduced 
by one for each calendar year that has elapsed since the calendar year 
of death.
    Q-6. What life expectancies must be used for purposes of 
determining required minimum distributions under section 401(a)(9)?
    A-6. (a) General rule. Unless otherwise prescribed in accordance 
with paragraph (b) of this A-6, life expectancies for purposes of 
determining required minimum distributions under section 401(a)(9) must 
be computed using of the expected return multiples in Tables V and VI 
of Sec. 1.72-9.
    (b) Revised expected return table. The expected return multiples 
described in paragraph (a) of this A-6 may be replaced by revised 
expected return multiples prescribed for use for purposes of 
determining required minimum distributions under section 401(a)(9) by 
the Commissioner in revenue rulings, notices, and other guidance 
published in the Internal Revenue Bulletin. See 
Sec. 601.601(d)(2)(ii)(b) of this chapter.
    Q-7. If an employee has more than one designated beneficiary, which 
designated beneficiary's life expectancy will be used to determine the 
applicable distribution period?
    A-7. (a) General rule. (1) Except as otherwise provided in 
paragraph (c) of this A-7, if more than one individual is designated as 
a beneficiary with respect to an employee as of any applicable date for 
determining the designated beneficiary, the designated beneficiary with 
the shortest life expectancy will be the designated beneficiary for 
purposes of determining the distribution period. However, except as 
otherwise provided in A-5 of Sec. 1.401(a)(9)-4 and paragraph (c)(1) of 
this A-7, if a person other than an individual is designated as a 
beneficiary, the employee will be treated as not having any designated 
beneficiaries for purposes of section 401(a)(9) even if there are also 
individuals designated as beneficiaries.
    (2) See A-2 of Sec. 1.401(a)(9)-8 for special rules which apply if 
an employee's benefit under a plan is divided into separate accounts 
(or segregated shares in the case of a defined benefit plan) and the 
beneficiaries with respect to a separate account differ from the 
beneficiaries of another separate account.
    (b) Contingent beneficiary. Except as provided in paragraph (c)(1) 
of this A-7, if a beneficiary's entitlement to an employee's benefit is 
contingent on an event other than the employee's death or the death of 
another beneficiary, such contingent beneficiary is considered to be a 
designated beneficiary for purposes of determining which designated 
beneficiary has the shortest life expectancy under paragraph (a) of 
this A-7.
    (c) Death contingency. (1) If a beneficiary (subsequent 
beneficiary) is entitled to any portion of an employee's benefit only 
if another beneficiary dies before the entire benefit to which that 
other beneficiary is entitled has been distributed by the plan, the 
subsequent beneficiary will not be considered a beneficiary for 
purposes of determining who is the designated beneficiary with the 
shortest life expectancy under paragraph (a) of this A-7 or whether a 
beneficiary who is not an individual is a beneficiary. This rule does 
not apply if the other beneficiary dies prior to the applicable date 
for determining the designated beneficiary.
    (2) If the designated beneficiary whose life expectancy is being 
used to calculate the distribution period dies on or after the 
applicable date, such beneficiary's remaining life expectancy will be 
used to determine the distribution period whether or not a beneficiary 
with a shorter life expectancy receives the benefits.
    (3) This paragraph (c) is illustrated by the following examples:

    Example 1.  Employer L maintains a defined contribution plan, 
Plan W. Unmarried Employee C dies in calendar year 2001 at age 30. 
As of December 31, 2002, D, the sister of C, is the beneficiary of 
C's account balance under Plan W. Prior to death C has designated 
that, if D dies before C's entire account balance has been 
distributed to D, E, mother of C and D, will be the beneficiary of 
the account balance. Because E is only entitled, as a beneficiary, 
to any portion of C's account if D dies before the entire account 
has been distributed, E is disregarded in determining C's designated 
beneficiary. Accordingly, even after D's death, D's life expectancy 
continues to be used to determined the distribution period.
    Example 2. (i) Employer M maintains a defined contribution plan, 
Plan X. Employee A, an employee of M, died in 2001 at the age of 55, 
survived by spouse, B, who was 50 years old. Prior to A's death, M 
had

[[Page 3942]]

established an account balance for A in Plan X. A's account balance 
is invested only in productive assets. A named the trustee of a 
testamentary trust (Trust P) established under A's will as the 
beneficiary of all amounts payable from the A's account in Plan X 
after A's death. A copy of the Trust P and a list of the trust 
beneficiaries were provided to the plan administrator of Plan X by 
the end of the calendar year following the calendar year of A's 
death. As of the date of A's death, the Trust P was irrevocable and 
was a valid trust under the laws of the state of A's domicile. A's 
account balance in Plan X was includible in A's gross estate under 
Sec. 2039.
    (ii) Under the terms of Trust P, all trust income is payable 
annually to B, and no one has the power to appoint Trust P principal 
to any person other than B. A's children, who are all younger than 
B, are the sole remainder beneficiaries of the Trust P. No other 
person has a beneficial interest in Trust P. Under the terms of the 
Trust P, B has the power, exercisable annually, to compel the 
trustee to withdraw from A's account balance in Plan X an amount 
equal to the income earned on the assets held in A's account in Plan 
X during the calendar year and to distribute that amount through 
Trust P to B. Plan X contains no prohibition on withdrawal from A's 
account of amounts in excess of the annual required minimum 
distributions under section 401(a)(9). In accordance with the terms 
of Plan X, the trustee of Trust P elects, in order to satisfy 
section 401(a)(9), to receive annual required minimum distributions 
using the life expectancy rule in section 401(a)(9)(B)(iii) for 
distributions over a distribution period equal to B's life 
expectancy. If B exercises the withdrawal power, the trustee must 
withdraw from A's account under Plan X the greater of the amount of 
income earned in the account during the calendar year or the 
required minimum distribution. However, under the terms of Trust P, 
and applicable state law, only the portion of the Plan X 
distribution received by the trustee equal to the income earned by 
A's account in Plan X is required to be distributed to B (along with 
any other trust income.)
    (iii) Because some amounts distributed from A's account in Plan 
X to Trust P may be accumulated in Trust P during B's lifetime for 
the benefit of A's children, as remaindermen beneficiaries of Trust 
P, even though access to those amounts are delayed until after B's 
death, A's children are beneficiaries of A's account in Plan X in 
addition to B and B is not the sole beneficiary of A's account. Thus 
the designated beneficiary used to determine the distribution period 
from A's account in Plan X is the beneficiary with the shortest life 
expectancy. B's life expectancy is the shortest of all the potential 
beneficiaries of the testamentary trust's interest in A's account in 
Plan X (including remainder beneficiaries). Thus, the distribution 
period for purposes of section 401(a)(9)(B)(iii) is B's life 
expectancy. Because B is not the sole beneficiary of the 
testamentary trust's interest in A's account in Plan X, the special 
rule in 401(a)(9)(B)(iv) is not available and the annual required 
minimum distributions from the account to Trust M must begin no 
later than the end of the calendar year immediately following the 
calendar year of A's death.
    Example 3. (i) The facts are the same as Example 2 except that 
the testamentary trust instrument provides that all amounts 
distributed from A's account in Plan X to the trustee while B is 
alive will be paid directly to B upon receipt by the trustee of 
Trust P.
    (ii) In this case, B is the sole beneficiary of A's account in 
Plan X for purposes of determining the designated beneficiary under 
section 401(a)(9)(B)(iii) and (iv). No amounts distributed from A's 
account in Plan X to Trust P are accumulated in Trust P during B's 
lifetime for the benefit of any other beneficiary. Because B is the 
sole beneficiary of the testamentary trust's interest in A's account 
in Plan X, the annual required minimum distributions from A's 
account to Trust P must begin no later than the end of the calendar 
year in which A would have attained age 70\1/2\. rather than the 
calendar year immediately following the calendar year of A's death.

    (d) Designations by beneficiaries. (1) If the plan provides (or 
allows the employee to specify) that, after the end of the calendar 
year following the calendar year in which the employee died, any person 
or persons have the discretion to change the beneficiaries of the 
employee, then, for purposes of determining the distribution period 
after the employee's death, the employee will be treated as not having 
designated a beneficiary. However, such discretion will not be found to 
exist merely because a beneficiary may designate a subsequent 
beneficiary for distributions of any portion of the employee's benefit 
after the beneficiary dies.
    (2) This paragraph (d) is illustrated by the following example:

    Example. The facts are the same as in Example 1 in paragraph 
(c)(3) of this A-7, except that, as permitted under the plan, D 
designates E as the beneficiary of any amount remaining after the 
death of D rather than C making this designation. E is still 
disregarded in determining C's designated beneficiary for purposes 
of section 401(a)(9).

    Q-8. If a portion of an employee's individual account is not vested 
as of the employee's required beginning date, how is the determination 
of the required minimum distribution affected?
    A-8. If the employee's benefit is in the form of an individual 
account, the benefit used to determine the required minimum 
distribution for any distribution calendar year will be determined in 
accordance with A-1 of this section without regard to whether or not 
all of the employee's benefit is vested. If any portion of the 
employee's benefit is not vested, distributions will be treated as 
being paid from the vested portion of the benefit first. If, as of the 
end of a distribution calendar year (or as of the employee's required 
beginning date, in the case of the employee's first distribution 
calendar year), the total amount of the employee's vested benefit is 
less than the required minimum distribution for the calendar year, only 
the vested portion, if any, of the employee's benefit is required to be 
distributed by the end of the calendar year (or, if applicable, by the 
employee's required beginning date). However, the required minimum 
distribution for the subsequent distribution calendar year must be 
increased by the sum of amounts not distributed in prior calendar years 
because the employee's vested benefit was less than the required 
minimum distribution (subject to the limitation that the required 
minimum distribution for that subsequent distribution calendar year 
will not exceed the vested portion of the employee's benefit). In such 
case, an adjustment for the additional amount distributed which 
corresponds to the adjustment described in A-3(c)(2) of this section 
will be made to the account used to determine the required minimum 
distribution for that calendar year.


Sec. 1.401(a)(9)-6  Required minimum distributions as annuity payments.

    Q-1. How must annuity distributions under a defined benefit plan be 
paid in order to satisfy section 401(a)(9)?
    A-1. (a) In order to satisfy section 401(a)(9), annuity 
distributions under a defined benefit plan must be paid in periodic 
payments made at intervals not longer than one year (payment intervals) 
for a life (or lives), or over a period certain not longer than a life 
expectancy (or joint life and last survivor expectancy) described in 
section 401(a)(9)(A)(ii) or section 401(a)(9)(B)(iii), whichever is 
applicable. The life expectancy (or joint life and last survivor 
expectancy) for purposes of determining the length of the period 
certain will be determined in accordance with A-3 of this section. Once 
payments have commenced over a period certain, the period certain may 
not be lengthened even if the period certain is shorter than the 
maximum permitted. Life annuity payments must satisfy the minimum 
distribution incidental benefit requirements of A-2 of this section. 
All annuity payments (life and period certain) also must either be 
nonincreasing or increase only as follows:
    (1) With any percentage increase in a specified and generally 
recognized cost-of-living index;
    (2) To the extent of the reduction in the amount of the employee's 
payments to provide for a survivor benefit upon death, but only if the 
beneficiary whose life was being used to determine the

[[Page 3943]]

period described in section 401(a)(9)(A)(ii) over which payments were 
being made dies or is no longer the employee's beneficiary pursuant to 
a qualified domestic relations order within the meaning of section 
414(p);
    (3) To provide cash refunds of employee contributions upon the 
employee's death; or
    (4) Because of an increase in benefits under the plan.
    (b) The annuity may be a life annuity (or joint and survivor 
annuity) with a period certain if the life (or lives, if applicable) 
and period certain each meet the requirements of paragraph (a) of this 
A-1. For purposes of this section, if distribution is permitted to be 
made over the lives of the employee and the designated beneficiary, 
references to life annuity include a joint and survivor annuity.
    (c) Distributions under a variable annuity will not be found to be 
increasing merely because the amount of the payments varies with the 
investment performance of the underlying assets. However, the 
Commissioner may prescribe additional requirements applicable to such 
variable life annuities in revenue rulings, notices, and other guidance 
published in the Internal Revenue Bulletin. See 
Sec. 601.601(d)(2)(ii)(b) of this chapter.
    (d)(1) Except as provided in (d)(2) of this A-1, annuity payments 
must commence on or before the employee's required beginning date 
(within the meaning of A-2 of Sec. 1.401(a)(9)-2). The first payment 
which must be made on or before the employee's required beginning date 
must be the payment which is required for one payment interval. The 
second payment need not be made until the end of the next payment 
interval even if that payment interval ends in the next calendar year. 
Similarly, in the case of distributions commencing after death in 
accordance with section 401(a)(9)(B)(iii) and (iv), the first payment 
that must be made on or before the date determined under A-3(a) or (b) 
(whichever is applicable) of Sec. 1.401(a)(9)-3 must be the payment 
which is required for one payment interval. Payment intervals are the 
periods for which payments are received, e.g., bimonthly, monthly, 
semi-annually, or annually. All benefit accruals as of the last day of 
the first distribution calendar year must be included in the 
calculation of the amount of the life annuity payments for payment 
intervals ending on or after the employee's required beginning date.
    (2) In the case of an annuity contract purchased after the required 
beginning date, the first payment interval must begin on or before the 
purchase date and the payment required for one payment interval must be 
made no later than the end of such payment interval.
    (3) This paragraph (d) is illustrated by the following example:

    Example. A defined benefit plan (Plan X) provides monthly 
annuity payments of $500 for the life of unmarried participants with 
a 10-year period certain. An unmarried participant (A) in Plan X 
attains age 70 \1/2\ in 2001. In order to meet the requirements of 
this paragraph, the first payment which must be made on behalf of A 
on or before April 1, 2002, will be $500 and the payments must 
continue to be made in monthly payments of $500 thereafter for the 
life and 10-year certain period.

    (e) If distributions from a defined benefit plan are not in the 
form of an annuity, the employee's benefit will be treated as an 
individual account for purposes of determining the required minimum 
distribution. See Sec. 1.401(a)(9)-5.
    Q-2. How must distributions in the form of a life (or joint and 
survivor) annuity be made in order to satisfy the minimum distribution 
incidental benefit (MDIB) requirement of section 401(a)(9)(G)?
    A-2. (a) Life annuity for employee. If the employee's benefit is 
payable in the form of a life annuity for the life of the employee 
satisfying section 401(a)(9), the MDIB requirement of section 
401(a)(9)(G) will be satisfied.
    (b) Joint and survivor annuity, spouse beneficiary. If the 
employee's sole beneficiary, as of the annuity starting date for 
annuity payments, is the employee's spouse and the distributions 
satisfy section 401(a)(9) without regard to the MDIB requirement, the 
distributions to the employee will be deemed to satisfy the MDIB 
requirement of section 401(a)(9)(G). For example, if an employee's 
benefit is being distributed in the form of a joint and survivor 
annuity for the lives of the employee and the employee's spouse and the 
spouse is the sole beneficiary of the employee, the amount of the 
periodic payment payable to the spouse may always be 100 percent of the 
annuity payment payable to the employee regardless of the difference in 
the ages between the employee and the employee's spouse. However, the 
amount of the payments under the annuity must be nonincreasing unless 
specifically permitted under A-1 of this section.
    (c) Joint and survivor annuity, nonspouse beneficiary--(1) 
Explanation of rule. If distributions commence under a distribution 
option that is in the form of a joint and survivor annuity for the 
joint lives of the employee and a beneficiary other than the employee's 
spouse, the MDIB requirement will not be satisfied as of the date 
distributions commence unless the distribution option provides that 
annuity payments to be made to the employee on and after the employee's 
required beginning date will satisfy the conditions of this paragraph. 
The periodic annuity payment payable to the survivor must not at any 
time on and after the employee's required beginning date exceed the 
applicable percentage of the annuity payment payable to the employee 
using the table below. Thus, this requirement must be satisfied with 
respect to any benefit increase after such date, including increases to 
reflect increases in the cost of living. The applicable percentage is 
based on the excess of the age of the employee over the age of the 
beneficiary as of their attained ages as of their birthdays in a 
calendar year. If the employee has more than one beneficiary, the 
applicable percentage will be the percentage using the age of the 
youngest beneficiary. Additionally, the amount of the annuity payments 
must satisfy A-1 of this section.
    (2) Table.

------------------------------------------------------------------------
                                                            Applicable
    Excess of age of employee over age of beneficiary       percentage
------------------------------------------------------------------------
10 years or less........................................             100
11......................................................              96
12......................................................              93
13......................................................              90
14......................................................              87
15......................................................              84
16......................................................              82
17......................................................              79
18......................................................              77
19......................................................              75
20......................................................              73
21......................................................              72
22......................................................              70
23......................................................              68
24......................................................              67
25......................................................              66
26......................................................              64
27......................................................              63
28......................................................              62
29......................................................              61
30......................................................              60
31......................................................              59
32......................................................              59
33......................................................              58
34......................................................              57
35......................................................              56
36......................................................              56
37......................................................              55
38......................................................              55
39......................................................              54
40......................................................              54
41......................................................              53
42......................................................              53
43......................................................              53
44 and greater..........................................              52
------------------------------------------------------------------------

    (3) Example. This paragraph (c) is illustrated by the following 
example:


[[Page 3944]]


    Example. Distributions commence on January 1, 2001 to an 
employee (Z), born March 1, 1935, after retirement at age 65. Z's 
daughter (Y), born February 5, 1965, is Z's beneficiary. The 
distributions are in the form of a joint and survivor annuity for 
the lives of Z and Y with payments of $500 a month to Z and upon Z's 
death of $500 a month to Y, i.e., the projected monthly payment to Y 
is 100 percent of the monthly amount payable to Z. There is no 
provision under the option for a change in the projected payments to 
Y as of April 1, 2006, Z's required beginning date. Consequently, as 
of January 1, 2001, the date annuity distributions commence, the 
plan does not satisfy the MDIB requirement in operation because, as 
of such date, the distribution option provides that, as of Z's 
required beginning date, the monthly payment to Y upon Z's death 
will exceed 60 percent of Z's monthly payment (the maximum 
percentage for a difference of ages of 30 years).
    (d) Period certain and annuity features. If a distribution form 
includes a life annuity and a period certain, the amount of the annuity 
payments payable to the employee must satisfy paragraph (c) of this A-
2, and the period certain may not exceed the period determined under A-
3 of this section.
    Q-3. How long is a period certain under an annuity contract 
permitted to extend?
    A-3. (a) Distributions commencing during the employee's life--(1) 
Spouse beneficiary. If an employee's spouse is the employee's sole 
beneficiary as of the annuity starting date, the period certain for 
annuity distributions commencing during the life of an employee with an 
annuity starting date on or after the employee's required beginning 
date is not permitted to exceed the joint life and last survivor 
expectancy of the employee and the spouse using the age of the employee 
and spouse as of their birthdays in the calendar year that contains the 
annuity starting date.
    (2) Nonspouse beneficiary. If an employee's surviving spouse is not 
the employee's sole beneficiary as of the annuity starting date, the 
period certain for any annuity distributions during the life of the 
employee with an annuity starting date on or after the employee's 
required beginning date is not permitted to exceed the shorter of the 
applicable distribution period for the employee (determined in 
accordance with the table in A-4(a)(2) of Sec. 1.401(a)(9)-5) for the 
calendar year that contains on the annuity starting date or the joint 
life and last survivor expectancy of the employee and the employee's 
designated beneficiary, determined using the designated beneficiary as 
of the annuity starting date and using their ages as of their birthdays 
in the calendar year that contains the annuity starting date. See A-10 
for the rule for annuity payments with an annuity starting date before 
the required beginning date.
    (b) Life expectancy rule. (1) If annuity distributions commence 
after the death of the employee under the life expectancy rule (under 
section 401(a)(9)(iii) or (iv)), the period certain for any 
distributions commencing after death cannot exceed the applicable 
distribution period determined under A-5(b) of Sec. 1.401(a)(9)-5 for 
the distribution calendar year that contains the annuity starting date.
    (2) If the annuity starting date is in a calendar year before the 
first distribution calendar year, the period certain may not exceed the 
life expectancy of the designated beneficiary using the beneficiary's 
age in the year that contains the annuity starting date.
    Q-4. May distributions be made from an annuity contract which is 
purchased from an insurance company?
    A-4. Yes. Distributions may be made from an annuity contract which 
is purchased with the employee's benefit by the plan from an insurance 
company and which makes payments that satisfy the provisions of this 
section. In the case of an annuity contract purchased from an insurance 
company, there is also an exception to the nonincreasing requirement in 
A-1(a) of this section for an increase to provide a cash refund upon 
the employee's death equal to the excess of the amount of the premiums 
paid for the contract over the prior distributions under the contract. 
If the payments actually made under the annuity contract do not meet 
the requirements of section 401(a)(9), the plan fails to satisfy 
section 401(a)(9).
    Q-5. In the case of annuity distributions under a defined benefit 
plan, how must additional benefits which accrue after the employee's 
required beginning date be distributed in order to satisfy section 
401(a)(9)?
    A-5. (a) In the case of annuity distributions under a defined 
benefit plan, if any additional benefits accrue after the employee's 
required beginning date, distribution of such amount as a separate 
identifiable component must commence in accordance with A-1 of this 
section beginning with the first payment interval ending in the 
calendar year immediately following the calendar year in which such 
amount accrues.
    (b) A plan will not fail to satisfy section 401(a)(9) merely 
because there is an administrative delay in the commencement of the 
distribution of the separate identifiable component, provided that the 
actual payment of such amount commences as soon as practicable but not 
later than by the end of the first calendar year following the calendar 
year in which the additional benefit accrues, and that the total amount 
paid during such first calendar year is not less than the total amount 
that was required to be paid during that year under A-5(a) of this 
section.
    Q-6. If a portion of an employee's benefit is not vested as of the 
employee's required beginning date, how is the determination of the 
required minimum distribution affected?
    A-6. In the case of annuity distributions from a defined benefit 
plan, if any portion of the employee's benefit is not vested as of 
December 31 of a distribution calendar year (or as of the employee's 
required beginning date in the case of the employee's first 
distribution calendar year), the portion which is not vested as of such 
date will be treated as not having accrued for purposes of determining 
the required minimum distribution for that distribution calendar year. 
When an additional portion of the employee's benefit becomes vested, 
such portion will be treated as an additional accrual. See A-5 of this 
section for the rules for distributing benefits which accrue under a 
defined benefit plan after the employee's required beginning date.
    Q-7. If an employee retires after the calendar year in which the 
employee attains age 70\1/2\, for what period must the employee's 
accrued benefit under a defined benefit plan be actuarially increased?
    A-7. (a) Actuarial increase starting date. If an employee (other 
than a 5-percent owner) retires after the calendar year in which the 
employee attains age 70\1/2\, in order to satisfy section 
401(a)(9)(C)(iii), the employee's accrued benefit under a defined 
benefit plan must be actuarially increased to take into account any 
period after age 70\1/2\ in which the employee was not receiving any 
benefits under the plan. The actuarial increase required to satisfy 
section 401(a)(9)(C)(iii) must be provided for the period starting on 
April 1 following the calendar year in which the employee attains age 
70\1/2\.
    (b) Actuarial increase ending date. The period for which the 
actuarial increase must be provided ends on the date on which benefits 
commence after retirement in an amount sufficient to satisfy section 
401(a)(9).
    (c) Nonapplication to plan providing same required beginning date 
for all employees. If as permitted under A-2(e) of Sec. 1.401(a)(9)-2, 
a plan provides that the required beginning date for purposes of 
section 401(a)(9) for all employees is April 1 of the calendar year 
following the calendar year in which the employee attained age 70\1/2\ 
(regardless of whether the employee is a 5-percent owner) and the plan 
makes distributions

[[Page 3945]]

in an amount sufficient to satisfy section 401(a)(9) using that 
required beginning date, no actuarial increase is required under 
section 401(a)(9)(C)(iii).
    (d) Nonapplication to defined contribution plans. The actuarial 
increase required under this A-7 does not apply to defined contribution 
plans.
    (e) Nonapplication to governmental and church plans. The actuarial 
increase required under this A-7 does not apply to a governmental plan 
(within the meaning of section 414(d)) or a church plan. For purposes 
of this paragraph, the term church plan means a plan maintained by a 
church for church employees, and the term church means any church (as 
defined in section 3121(w)(3)(A)) or qualified church-controlled 
organization (as defined in section 3121(w)(3)(B)).
    Q-8. What amount of actuarial increase is required under section 
401(a)(9)(C)(iii)?
    A-8. In order to satisfy section 401(a)(9)(C)(iii), the retirement 
benefits payable with respect to an employee as of the end of the 
period for actuarial increases (described in A-7 of this section) must 
be no less than: the actuarial equivalent of the employee's retirement 
benefits that would have been payable as of the date the actuarial 
increase must commence under A-7(a) of this section if benefits had 
commenced on that date; plus the actuarial equivalent of any additional 
benefits accrued after that date; reduced by the actuarial equivalent 
of any distributions made with respect to the employee's retirement 
benefits after that date. Actuarial equivalence is determined using the 
plan's assumptions for determining actuarial equivalence for purposes 
of satisfying section 411.
    Q-9. How does the actuarial increase required under section 
401(a)(9)(C)(iii) relate to the actuarial increase required under 
section 411?
    A-9. In order for any of an employee's accrued benefit to be 
nonforfeitable as required under section 411, a defined benefit plan 
must make an actuarial adjustment to an accrued benefit the payment of 
which is deferred past normal retirement age. The only exception to 
this rule is that generally no actuarial adjustment is required to 
reflect the period during which a benefit is suspended as permitted 
under section 203(a)(3)(B) of the Employee Retirement Income Security 
Act of 1974 (ERISA). The actuarial increase required under section 
401(a)(9) for the period described in A-7 of this section is generally 
the same as, and not in addition to, the actuarial increase required 
for the same period under section 411 to reflect any delay in the 
payment of retirement benefits after normal retirement age. However, 
unlike the actuarial increase required under section 411, the actuarial 
increase required under section 401(a)(9)(C) must be provided even 
during the period during which an employee's benefit has been suspended 
in accordance with ERISA section 203(a)(3)(B).
    Q-10. What rule applies if distributions commence to an employee on 
a date before the employee's required beginning date over a period 
permitted under section 401(a)(9)(A)(ii) and the distribution form is 
an annuity under which distributions are made in accordance with the 
provisions of A-1 (and if applicable A-4) of this section?
    A-10. (a) General rule. If distributions irrevocably (except for 
acceleration) commence to an employee on a date before the employee's 
required beginning date over a period permitted under section 
401(a)(9)(A)(ii) and the distribution form is an annuity under which 
distributions are made in accordance with the provisions of A-1 (and, 
if applicable, A-4) of this section, the annuity starting date will be 
treated as the required beginning date for purposes of applying the 
rules of this section and Sec. 1.401(a)(9)-3. Thus, for example, the 
designated beneficiary distributions will be determined as of the 
annuity starting date. Similarly, if the employee dies after the 
annuity starting date but before the annuity starting date determined 
under A-2 of Sec. 1.401(a)(9)-2, after the employee's death, the 
remaining portion of the employee's interest must continue to be 
distributed in accordance with this section over the remaining period 
over which distributions commenced (single or joint lives and, if 
applicable, period certain). The rules in Sec. 1.401(a)(9)-3 and 
section 401(a)(9)(B)(ii) or (iii) and (iv) do not apply.
    (b) Period certain. If as of the employee's birthday in the year 
that contains the annuity starting date, the age of the employee is 
under 70, the following rule applies in applying the rule in paragraph 
(a)(2) of A-3 of this section. The applicable distribution period for 
the employee (determined in accordance with the table in A-4(a)(2) of 
Sec. 1.401(a)(9)-5) is 26.2 plus the difference between 70 and the age 
of the employee as of the employee's birthday in the year that contains 
the annuity starting date.
    Q-11. What rule applies if distributions commence irrevocably 
(except for acceleration) to the surviving spouse of an employee over a 
period permitted under section 401(a)(9)(B)(iii)(II) before the date on 
which distributions are required to commence and the distribution form 
is an annuity under which distributions are made as of the date 
distributions commence in accordance with the provisions of A-1 (and if 
applicable A-4) of this section,
    A-11. If distributions commence irrevocably (except for 
acceleration) to the surviving spouse of an employee over a period 
permitted under section 401(a)(9)(B)(iii)(II) before the date on which 
distributions are required to commence and the distribution form is an 
annuity under which distributions are made as of the date distributions 
commence in accordance with the provisions of A-1 (and if applicable A-
4) of this section, distributions will be considered to have begun on 
the actual commencement date for purposes of section 
401(a)(9)(B)(iv)(II). Consequently, in such case, A-5 of 
Sec. 1.401(a)(9)-3 and section 401(a)(9)(B)(ii) and (iii) will not 
apply upon the death of the surviving spouse as though the surviving 
spouse were the employee. Instead, the annuity distributions must 
continue to be made, in accordance with the provisions of A-1 (and if 
applicable A-4) of this section over the remaining period over which 
distributions commenced (single life and, if applicable, period 
certain).


Sec. 1.401(a)(9)-7  Rollovers and Transfers.

    Q-1. If an amount is distributed by one plan (distributing plan) 
and is rolled over to another plan, is the benefit or the required 
minimum distribution under the distributing plan affected by the 
rollover?
    A-1. No. If an amount is distributed by one plan and is rolled over 
to another plan, the amount distributed is still treated as a 
distribution by the distributing plan for purposes of section 
401(a)(9), notwithstanding the rollover.
    Q-2. If an amount is distributed by one plan (distributing plan) 
and is rolled over to another plan (receiving plan), how are the 
benefit and the required minimum distribution under the receiving plan 
affected?
    A-2. If an amount is distributed by one plan (distributing plan) 
and is rolled over to another plan (receiving plan), the benefit of the 
employee under the receiving plan is increased by the amount rolled 
over. However, the distribution has no impact on the required minimum 
distribution to be made by the receiving plan for the calendar year in 
which the rollover is received. But, if a required minimum distribution 
is required to be made by the receiving plan for the following calendar 
year, the rollover amount must be considered to be part of the

[[Page 3946]]

employee's benefit under the receiving plan. Consequently, for purposes 
of determining any required minimum distribution for the calendar year 
immediately following the calendar year in which the amount rolled over 
is received by the receiving plan, in the case in which the amount 
rolled over is received after the last valuation date in the calendar 
year under the receiving plan, the benefit of the employee as of such 
valuation date, adjusted in accordance with A-3 of Sec. 1.401(a)(9)-5, 
will be increased by the rollover amount valued as of the date of 
receipt. For purposes of calculating the benefit under the receiving 
plan pursuant to the preceding sentence, if the amount rolled over is 
received by the receiving plan in a different calendar year from the 
calendar year in which it is distributed by the distributing plan, the 
amount rolled over is deemed to have been received by the receiving 
plan in the calendar year in which it was distributed by the 
distributing plan.
    Q-3. In the case of a transfer of an amount of an employee's 
benefit from one plan (transferor plan) to another plan (transferee 
plan), are there any special rules for satisfying the required minimum 
distribution requirement or determining the employee's benefit under 
the transferor plan?
    A-3. (a) In the case of a transfer of an amount of an employee's 
benefit from one plan to another, the transfer is not treated as a 
distribution by the transferor plan for purposes of section 401(a)(9). 
Instead, the benefit of the employee under the transferor plan is 
decreased by the amount transferred. However, if any portion of an 
employee's benefit is transferred in a distribution calendar year with 
respect to that employee, in order to satisfy section 401(a)(9), the 
transferor plan must determine the amount of the required minimum 
distribution with respect to that employee for the calendar year of the 
transfer using the employee's benefit under the transferor plan before 
the transfer. Additionally, if any portion of an employee's benefit is 
transferred in the employee's second distribution calendar year but on 
or before the employee's required beginning date, in order to satisfy 
section 401(a)(9), the transferor plan must determine the amount of the 
required minimum distribution requirement for the employee's first 
distribution calendar year based on the employee's benefit under the 
transferor plan before the transfer. The transferor plan may satisfy 
the required minimum distribution requirement for the calendar year of 
the transfer (and the prior year if applicable) by segregating the 
amount which must be distributed from the employee's benefit and not 
transferring that amount. Such amount may be retained by the transferor 
plan and distributed on or before the date required.
    (b) For purposes of determining any required minimum distribution 
for the calendar year immediately following the calendar year in which 
the transfer occurs, in the case of a transfer after the last valuation 
date for the calendar year of the transfer under the transferor plan, 
the benefit of the employee as of such valuation date, adjusted in 
accordance with A-3 of Sec. 1.401(a)(9)-5, will be decreased by the 
amount transferred, valued as of the date of the transfer.
    Q-4. If an amount of an employee's benefit is transferred from one 
plan (transferor plan) to another plan (transferee plan), how are the 
benefit and the required minimum distribution under the transferee plan 
affected?
    A-4. In the case of a transfer from one plan (transferor plan) to 
another (transferee plan), the general rule is that the benefit of the 
employee under the transferee plan is increased by the amount 
transferred. The transfer has no impact on the required minimum 
distribution to be made by the transferee plan in the calendar year in 
which the transfer is received. However, if a required minimum 
distribution is required from the transferee plan for the following 
calendar year, the transferred amount must be considered to be part of 
the employee's benefit under the transferee plan. Consequently, for 
purposes of determining any required minimum distribution for the 
calendar year immediately following the calendar year in which the 
transfer occurs, in the case of a transfer after the last valuation 
date of the transferee plan in the transfer calendar year, the benefit 
of the employee under the receiving plan valued as of such valuation 
date, adjusted in accordance with A-3 of Sec. 1.401(a)(9)-5, will be 
increased by the amount transferred valued as of the date of the 
transfer.
    Q-5. How are a spinoff, merger or consolidation (as defined in 
Sec. 1.414(l)-1) treated for purposes of determining an employee's 
benefit and required minimum distribution under section 401(a)(9)?
    A-5. For purposes of determining an employee's benefit and required 
minimum distribution under section 401(a)(9), a spinoff, a merger, or a 
consolidation (as defined in Sec. 1.414(l)-1) will be treated as a 
transfer of the benefits of the employees involved. Consequently, the 
benefit and required minimum distribution of each employee involved 
under the transferor and transferee plans will be determined in 
accordance with A-3 and A-4 of this section.


Sec. 1.401(a)(9)-8  Special rules.

    Q-1. What distribution rules apply if an employee is a participant 
in more than one plan?
    A-1. If an employee is a participant in more than one plan, the 
plans in which the employee participates are not permitted to be 
aggregated for purposes of testing whether the distribution 
requirements of section 401(a)(9) are met. The distribution of the 
benefit of the employee under each plan must separately meet the 
requirements of section 401(a)(9). For this purpose, a plan described 
in section 414(k) is treated as two separate plans, a defined 
contribution plan to the extent benefits are based on an individual 
account and a defined benefit plan with respect to the remaining 
benefits.
    Q-2. If an employee's benefit under a plan is divided into separate 
accounts (or segregated shares in the case of a defined benefit plan), 
do the distribution rules in section 401(a)(9) and these regulations 
apply separately to each separate account (or segregated share)?
    A-2. (a) Except as otherwise provided in paragraphs (b) and (c) of 
this A-2, if an employee's account under a defined contribution plan 
plan is divided into separate accounts (or if an employee's benefit 
under a defined benefit plan is divided into segregated shares in the 
case of a defined benefit plan) under the plan, the separate accounts 
(or segregated shares) will be aggregated for purposes of satisfying 
the rules in section 401(a)(9). Thus, except as otherwise provided in 
paragraphs (b) and (c) of this A-2, all separate accounts, including a 
separate account for nondeductible employee contributions (under 
section 72(d)(2)) or for qualified voluntary employee contributions (as 
defined in section 219(e)), will be aggregated for purposes of section 
401(a)(9).
    (b) If, for lifetime distributions, as of an employee's required 
beginning date (or the beginning of any distribution calendar year 
beginning after the employee's required beginning date), or in the case 
of distributions under section 401(a)(9)(B)(ii) or (iii) and (iv), as 
of the end of the year following the year containing the employee's (or 
spouse's, where applicable) date of death, the beneficiaries with 
respect to a separate account (or segregated share in the case of a 
defined benefit plan) under the plan differ from the beneficiaries with 
respect to the other separate accounts (or segregate shares)

[[Page 3947]]

of the employee under the plan, such separate account (or segregated 
share) under the plan need not be aggregated with other separate 
accounts (or segregated shares) under the plan in order to determine 
whether the distributions from such separate account (or segregated 
share) under the plan satisfy section 401(a)(9). Instead, the rules in 
section 401(a)(9) may separately apply to such separate account (or 
segregated share) under the plan. For example, if, in the case of a 
distribution described in section 401(a)(9)(B)(iii) and (iv), the only 
beneficiary of a separate account (or segregated share) under the plan 
is the employee's surviving spouse, and beneficiaries other than the 
surviving spouse are designated with respect to the other separate 
accounts of the employee, distribution of the spouse's separate account 
(or segregated share) under the plan need not commence until the date 
determined under the first sentence in A-3(b) of Sec. 1.401(a)(9)-3, 
even if distribution of the other separate accounts (or segregated 
shares) under the plan must commence at an earlier date. In the case of 
a distribution after the death of an employee to which section 
401(a)(9)(B)(i) does not apply, distribution from a separate account 
(or segregated share) of an employee may be made over a beneficiary's 
life expectancy in accordance with section 401(a)(9)(B)(iii) and (iv) 
even through distributions from other separate accounts (or segregated 
shares) under the plan with different beneficiaries are being made in 
accordance with the five-year rule in section 401(a)(9)(B)(ii).
    (c) A portion of an employee's account balance under a defined 
contribution plan is permitted to be used to purchase an annuity 
contract with a remaining amount maintained in the separate account. In 
that case, the separate account under the plan must be distributed in 
accordance with Sec. 1.401(a)(9)-5 in order to satisfy section 
401(a)(9) and the annuity payments under the annuity contract must 
satisfy Sec. 1.401(a)(9)-6 in order to satisfy section 401(a)(9).
    Q-3. What is a separate account or segregated share for purposes of 
section 401(a)(9)?
    A-3. (a) For purposes of section 401(a)(9), a separate account in 
an individual account is a portion of an employee's benefit determined 
by an acceptable separate accounting including allocating investment 
gains and losses, and contributions and forfeitures, on a pro rata 
basis in a reasonable and consistent matter between such portion and 
any other benefits. Further, the amounts of each such portion of the 
benefit will be separately determined for purposes of determining the 
amount of the required minimum distribution in accordance with 
Sec. 1.401(a)(9)-5.
    (b) A benefit in a defined benefit plan is separated into 
segregated shares if it consists of separate identifiable components 
which may be separately distributed.
    Q-4. Must a distribution that is required by section 401(a)(9) to 
be made by the required beginning date to an employee or that is 
required by section 401(a)(9)(B)(iii) and (iv) to be made by the 
required time to a designated beneficiary who is a surviving spouse be 
made notwithstanding the failure of the employee, or spouse where 
applicable, to consent to a distribution while a benefit is immediately 
distributable?
    A-4. Yes. Section 411(a)(11) and section 417(e) (see 
Secs. 1.411(a)(11)-1(c)(2) and 1.417(e)-1(c)) require employee and 
spousal consent to certain distributions of plan benefits while such 
benefits are immediately distributable. If an employee's normal 
retirement age is later than the required beginning date for the 
commencement of distributions under section 401(a)(9) and, therefore, 
benefits are still immediately distributable, the plan must, 
nevertheless, distribute plan benefits to the participant (or where 
applicable, to the spouse) in a manner that satisfies the requirements 
of section 401(a)(9). Section 401(a)(9) must be satisfied even though 
the participant (or spouse, where applicable) fails to consent to the 
distribution. In such a case, the plan may distribute in the form of a 
qualified joint and survivor annuity (QJSA) or in the form of a 
qualified preretirement survivor annuity (QPSA) and the consent 
requirements of sections 411(a)(11) and 417(e) are deemed to be 
satisfied if the plan has made reasonable efforts to obtain consent 
from the participant (or spouse if applicable) and if the distribution 
otherwise meets the requirements of section 417. If, because of section 
401(a)(11)(B), the plan is not required to distribute in the form of a 
QJSA to a participant or a QPSA to a surviving spouse, the plan may 
distribute the required minimum distribution amount required at the 
time required to satisfy section 401(a)(9) and the consent requirements 
of sections 411(a)(11) and 417(e) are deemed to be satisfied if the 
plan has made reasonable efforts to obtain consent from the participant 
(or spouse if applicable) and if the distribution otherwise meets the 
requirements of section 417.
    Q-5. Who is an employee's spouse or surviving spouse for purposes 
of section 401(a)(9)?
    A-5. Except as otherwise provided in A-6(a) (in the case of 
distributions of a portion of an employee's benefit payable to a former 
spouse of an employee pursuant to a qualified domestic relations 
order), for purposes of section 401(a)(9), an individual is a spouse or 
surviving spouse of an employee if such individual is treated as the 
employee's spouse under applicable state law. In the case of 
distributions after the death of an employee, for purposes of 
determining whether, under the life expectancy rule in section 
401(a)(9)(B)(iii) and (iv), the provisions of section 401(a)(9)(B)(iv) 
apply, the spouse of the employee is determined as of the date of death 
of the employee.
    Q-6. In order to satisfy section 401(a)(9), are there any special 
rules which apply to the distribution of all or a portion of an 
employee's benefit payable to an alternate payee pursuant to a 
qualified domestic relations order as defined in section 414(p) (QDRO)?
    A-6. (a) A former spouse to whom all or a portion of the employee's 
benefit is payable pursuant to a QDRO will be treated as a spouse 
(including a surviving spouse) of the employee for purposes of section 
401(a)(9), including the minimum distribution incidental benefit 
requirement, regardless of whether the QDRO specifically provides that 
the former spouse is treated as the spouse for purposes of sections 
401(a)(11) and 417.
    (b)(1) If a QDRO provides that an employee's benefit is to be 
divided and a portion is to be allocated to an alternate payee, such 
portion will be treated as a separate account (or segregated share) 
which separately must satisfy the requirements of section 401(a)(9) and 
may not be aggregated with other separate accounts (or segregated 
shares) of the employee for purposes of satisfying section 401(a)(9). 
Except as otherwise provided in paragraph
    (b)(2) of this A-6, distribution of such separate account allocated 
to an alternate payee pursuant to a QDRO must be made in accordance 
with section 401(a)(9). For example, in general, distribution of such 
account will satisfy section 401(a)(9)(A) if required minimum 
distributions from such account during the employee's lifetime begin 
not later than the employee's required beginning date and the required 
minimum distribution is determined in accordance with Sec. 1.401(a)(9)-
5 for each distribution calendar year using an applicable distribution 
period determined under A-4 of Sec. 1.401(a)(9)-5 using the age of the 
employee in the distribution calendar year for purposes of using the

[[Page 3948]]

table in A-4(a)(2) of Sec. 1.401(a)(9)-5 if applicable or ages of the 
employee and spousal alternate payee if their joint life expectancy is 
longer than the distribution period using that table. The determination 
of whether distribution from such account after the death of the 
employee to the alternate payee will be made in accordance with section 
401(a)(9)(B)(i) or section 401(a)(9)(B)(ii) or (iii) and (iv) will 
depend on whether distributions have begun as determined under A-5 or 
Sec. 1.401(a)(9)-2 (which provides, in general, that distributions are 
not treated as having begun until the employee's required beginning 
date even though payments may actually have begun before that date). 
For example, if the alternate payee dies before the employee and 
distribution of the separate account allocated to the alternate payee 
pursuant to the QDRO is to be made to the alternate payee's 
beneficiary, such beneficiary may be treated as a designated 
beneficiary for purposes of determining the required minimum 
distribution required from such account after the death of the employee 
if the beneficiary of the alternate payee is an individual and if such 
beneficiary is a beneficiary under the plan or specified to or in the 
plan. Specification in or pursuant to the QDRO will also be treated as 
specification to the plan.
    (2) Distribution of the separate account allocated to an alternate 
payee pursuant to a QDRO satisfy the requirements of section 
401(a)(9)(A)(ii) if such account is to be distributed, beginning not 
later than the employee's required beginning date, over the life of the 
alternate payee (or over a period not extending beyond the life 
expectancy of the alternative payee). Also, if the plan permits the 
employee to elect whether distribution upon the death of the employee 
will be made in accordance with the five-year rule in section 
401(a)(9)(B)(ii) or the life expectancy rule in section 
401(a)(9)(B)(iii) and (iv) pursuant to A-4(c) of Sec. 1.401(a)(9)-3, 
such election is to be made only by the alternate payee for purposes of 
distributing the separate account allocated to the alternate payee 
pursuant to the QDRO. If the alternate payee dies after distribution of 
the separate account allocated to the alternate payee pursuant to a 
QDRO has begun (determined under A-5 of Sec. 1.401(a)(9)-2) but before 
the employee dies, distribution of the remaining portion of that 
portion of the benefit allocated to the alternate payee must be made in 
accordance with the rules in Sec. 1.401(a)(9)-5 or Sec. 1.401(a)(9)-6 
for distributions during the life of the employee. Only after the death 
of the employee is the amount of the required minimum distribution 
determined in accordance with the rules that apply after the death of 
the employee.
    (c) If a QDRO does not provide that an employee's benefit is to be 
divided but provides that a portion of an employee's benefit (otherwise 
payable to the employee) is to be paid to an alternate payee, such 
portion will not be treated as a separate account (or segregated share) 
of the employee. Instead, such portion will be aggregated with any 
amount distributed to the employee and will be treated as having been 
distributed to the employee for purposes of determining whether the 
required minimum distribution requirement has been satisfied with 
respect to that employee.
    Q-7. Will a plan fail to satisfy section 401(a)(9) where it is not 
legally permitted to distribute to an alternate payee all or a portion 
of an employee's benefit payable to an alternate payee pursuant to a 
QDRO within the period specified in section 414(p)(7)?
    A-7. A plan will not fail to satisfy section 401(a)(9) merely 
because it fails to distribute a required amount during the period in 
which the issue of whether a domestic relations order is a QDRO is 
being determined pursuant to section 414(p)(7), provided that the 
period does not extend beyond the 18-month period described in section 
414(p)(7)(E). To the extent that a distribution otherwise required 
under section 401(a)(9) is not made during this period, this amount and 
any additional amount accrued during this period will be treated as 
though it is not vested during the period and any distributions with 
respect to such amounts must be made under the relevant rules for 
nonvested benefits described in either A-8 of Sec. 1.401(a)(9)-5 or A-6 
of Sec. 1.401(a)(9)-6.
    Q-8. Will a plan fail to satisfy section 401(a)(9) where an 
individual's distribution from the plan is less than the amount 
otherwise required to satisfy section 401(a)(9) under Sec. 1.401(a)(9)-
5 or Sec. 1.401(a)(9)-6 because distributions were being paid under an 
annuity contract issued by a life insurance company in state insurer 
delinquency proceedings and have been reduced or suspended by reasons 
of such state proceedings?
    A-8. A plan will not fail to satisfy section 401(a)(9) merely 
because an individual's distribution from the plan is less than the 
amount otherwise required to satisfy section 401(a)(9) under 
Sec. 1.401(a)(9)-5 or Sec. 1.401(a)(9)-6 because distributions were 
being paid under an annuity contract issued by a life insurance company 
in state insurer delinquency proceedings and have been reduced or 
suspended by reasons of such state proceedings. To the extent that a 
distribution otherwise required under section 401(a)(9) is not made 
during the state insurer delinquency proceedings, this amount and any 
additional amount accrued during this period will be treated as though 
it is not vested during the period and any distributions with respect 
to such amounts must be made under the relevant rules for nonvested 
benefits described in either A-8 of Sec. 1.401(a)(9)-5 or A-6 of 
Sec. 1.401(a)(9)-6.
    Q-9. Will a plan fail to qualify as a pension plan within the 
meaning of section 401(a) solely because the plan permits distributions 
to commence to an employee on or after April 1 of the calendar year 
following the calendar year in which the employee attains age 70\1/2\ 
even though the employee has not retired or attained the normal 
retirement age under the plan as of the date on which such 
distributions commence?
    A-9. No. A plan will not fail to qualify as a pension plan within 
the meaning of section 401(a) solely because the plan permits 
distributions to commence to an employee on or after April 1 of the 
calendar year following the calendar year in which the employee attains 
age 70\1/2\ even though the employee has not retired or attained the 
normal retirement age under the plan as of the date on which such 
distributions commence. This rule applies without regard to whether or 
not the employee is a 5-percent owner with respect to the plan year 
ending in the calendar year in which distributions commence.
    Q-10. Is the distribution of an annuity contract a distribution for 
purposes of section 401(a)(9)?
    A-10. No. The distribution of an annuity contract is not a 
distribution for purposes of section 401(a)(9).
    Q-11. Will a payment by a plan after the death of an employee fail 
to be treated as a distribution for purposes of section 401(a)(9) 
solely because it is made to an estate or a trust?
    A-11. A payment by a plan after the death of an employee will not 
fail to be treated as a distribution for purposes of section 401(a)(9) 
solely because it is made to an estate or a trust. As a result, the 
estate or trust which receives a payment from a plan after the death of 
an employee need not distribute the amount of such payment to the 
beneficiaries of the estate or trust in accordance with section 
401(a)(9)(B). However, pursuant to A-3 of Sec. 1.401(a)(9)-4, 
distribution to the estate must satisfy the five-year rule in section 
401(a)(9)(B)(iii) if the distribution to the employee had not begun (as 
defined in

[[Page 3949]]

A-6 of Sec. 1.401(a)(9)-2) as of the employee's date of death, and 
pursuant to A-3 of Sec. 1.401(a)(9)-4, an estate may not be a 
designated beneficiary. See A-5 and A-6 of Sec. 1.401(a)(9)-4 for 
provisions under which beneficiaries of a trust with respect to the 
trust's interest in an employee's benefit are treated as having been 
designated as beneficiaries of the employee under the plan.
    Q-12. Will a plan fail to satisfy section 411 if the plan is 
amended to eliminate benefit options that do not satisfy section 
401(a)(9)?
    A-12. Nothing in section 401(a)(9) permits a plan to eliminate for 
all participants a benefit option that could not otherwise be 
eliminated pursuant to section 411(d)(6). However, a plan must provide 
that, notwithstanding any other plan provisions, it will not distribute 
benefits under any option that does not satisfy section 401(a)(9). See 
A-3 of Sec. 1.401(a)(9)-1. Thus, the plan, notwithstanding section 
411(d)(6), must prevent participants from electing benefit options that 
do not satisfy section 401(a)(9).
    Q-13. Is a plan disqualified merely because it pays benefits under 
a designation made before January 1, 1984, in accordance with section 
242(b)(2) of the Tax Equity and Fiscal Responsibility Act (TEFRA)?
    A-13. No. Even though the distribution requirements added by TEFRA 
were retroactively repealed by the Tax Reform Act of 1984 (TRA of 
1984), the transitional election rule in section 242(b) was preserved. 
Satisfaction of the spousal consent requirements of section 417(a) and 
(e) (added by the Retirement Equity Act of 1984) will not be considered 
a revocation of the pre-1984 designation. However, sections 401(a)(11) 
and 417 must be satisfied with respect to any distribution subject to 
those sections. The election provided in section 242(b) of TEFRA is 
hereafter referred to as a section 242(b)(2) election.
    Q-14. In the case in which an amount is transferred from one plan 
(transferor plan) to another plan (transferee plan), may the transferee 
plan distribute the amount transferred in accordance with a section 
242(b)(2) election made under either the transferor plan or under the 
transferee plan?
    A-14. (a) In the case in which an amount is transferred from one 
plan to another plan, the amount transferred may be distributed in 
accordance with a section 242(b)(2) election made under the transferor 
plan if the employee did not elect to have the amount transferred and 
if the amount transferred is separately accounted for by the transferee 
plan. However, only the benefit attributable to the amount transferred, 
plus earnings thereon, may be distributed in accordance with the 
section 242(b)(2) election made under the transferor plan. If the 
employee elected to have the amount transferred, the transfer will be 
treated as a distribution and rollover of the amount transferred for 
purposes of this section.
    (b) In the case in which an amount is transferred from one plan to 
another plan, the amount transferred may not be distributed in 
accordance with a section 242(b)(2) election made under the transferee 
plan. If a section 242(b)(2) election was made under the transferee 
plan, the amount transferred must be separately accounted for. If the 
amount transferred is not separately accounted for under the transferee 
plan, the section 242(b)(2) election under the transferee plan is 
revoked and section 401(a)(9) will apply to subsequent distributions by 
the transferee plan.
    (c) A merger, spinoff, or consolidation, as defined in 
Sec. 1.414(l)-1(b), will be treated as a transfer for purposes of the 
section 242(b)(2) election.
    Q-15. If an amount is distributed by one plan (distributing plan) 
and rolled over into another plan (receiving plan), may the receiving 
plan distribute the amount rolled over in accordance with a section 
242(b)(2) election made under either the distributing plan or the 
receiving plan?
    A-15. No. If an amount is distributed by one plan and rolled over 
into another plan, the receiving plan must distribute the amount rolled 
over in accordance with section 401(a)(9) whether or not the employee 
made a section 242(b)(2) election under the distributing plan. Further, 
if the amount rolled over was not distributed in accordance with the 
election, the election under the distributing plan is revoked and 
section 401(a)(9) will apply to all subsequent distributions by the 
distributing plan. Finally, if the employee made a section 242(b)(2) 
election under the receiving plan and such election is still in effect, 
the amount rolled over must be separately accounted for under the 
receiving plan and distributed in accordance with section 401(a)(9). If 
amounts rolled over are not separately accounted for, any section 
242(b)(2) election under the receiving plan is revoked and section 
401(a)(9) will apply to subsequent distributions by the receiving plan.
    Q-16. May a section 242(b)(2) election be revoked after the date by 
which distributions are required to commence in order to satisfy 
section 401(a)(9) and this section of the regulations?
    A-16. Yes. A section 242(b)(2) election may be revoked after the 
date by which distributions are required to commence in order to 
satisfy section 401(a)(9) and this section of the regulations. However, 
if the section 242(b)(2) election is revoked after the date by which 
distributions are required to commence in order to satisfy section 
401(a)(9) and this section of the regulations and the total amount of 
the distributions which would have been required to be made prior to 
the date of the revocation in order to satisfy section 401(a)(9), but 
for the section 242(b)(2) election, have not been made, the trust must 
distribute by the end of the calendar year following the calendar year 
in which the revocation occurs the total amount not yet distributed 
which was required to have been distributed to satisfy the requirements 
of section 401(a)(9) and continue distributions in accordance with such 
requirements.
    Par. 3-4. Section 1.403(b)-2 is added to read as follows:


Sec. 1.403(b)-2  Required minimum distributions from annuity contracts 
purchased, or custodial accounts or retirement income accounts 
established, by a section 501(c)(3) organization or a public school.

    Q-1. Are section 403(b) contracts subject to the distribution rules 
provided in section 401(a)(9)?
    A-1. (a) Yes. Section 403(b) contracts are subject to the 
distribution rules provided in section 401(a)(9). For purposes of this 
section the term section 403(b) contract means an annuity contract 
described in section 403(b)(1), custodial account described in section 
403(b)(7), or a retirement income account described in section 
403(b)(9).
    (b) For purposes of applying the distribution rules in section 
401(a)(9), section 403(b) contracts will be treated as individual 
retirement annuities described in section 408(b) and individual 
retirement accounts described in section 408(a) (IRAs). Consequently, 
except as otherwise provided in paragraph (c), the distribution rules 
in section 401(a)(9) will be applied to section 403(b) contracts in 
accordance with the provisions in Sec. 1.408-8.
    (c)(1) The required beginning date for purposes of section 
403(b)(9) is April 1, of the calendar year following the later of the 
calendar year in which the employee attains 70\1/2\ or the calendar 
year in which the employee retires from employment with the employer 
maintaining the plan. The concept of 5-percent owner has no application 
in the case of employees of employers described in section 
403(b)(1)(A).

[[Page 3950]]

    (2) The rule in A-5 of Sec. 1.408-8 does not apply to section 
403(b) contracts. Thus, the surviving spouse of an employee is not 
permitted to treat a section 403(b) contract of which the spouse is the 
sole beneficiary as the spouse's own section 403(b) contract.
    Q-2. To what benefits under section 403(b) contracts, do the 
distribution rules provided in section 401(a)(9) apply?
    A-2. (a) The distribution rules provided in section 401(a)(9) apply 
to all benefits under section 403(b) contracts accruing after December 
31, 1986 (post-'86 account balance). The distribution rules provided in 
section 401(a)(9) do not apply to the balance of the account balance 
under the section 403(b) contract valued as of December 31, 1986, 
exclusive of subsequent earnings (pre-'87 account balance). 
Consequently, the post-'86 account balance includes earnings after 
December 31, 1986 on contributions made before January 1, 1987, in 
addition to the contributions made after December 31, 1986 and earnings 
thereon. The issuer or custodian of the section 403(b) contract must 
keep records that enable it to identify the pre-'87 account balance and 
subsequent changes as set forth in paragraph (b) of this A-2 and 
provide such information upon request to the relevant employee or 
beneficiaries with respect to the contract. If the issuer does not keep 
such records, the entire account balance will be treated as subject to 
section 401(a)(9).
    (b) In applying the distribution rules in section 401(a)(9), only 
the post-'86 account balance is used to calculate the required minimum 
distribution required for a calendar year. The amount of any 
distribution required to satisfy the required minimum distribution 
requirement for a calendar year will be treated as being paid from the 
post-'86 account balance. Any amount distributed in a calendar year in 
excess of the required minimum distribution requirement for a calendar 
year will be treated as paid from the pre-'87 account balance. The pre-
'87 account balance for the next calendar year will be permanently 
reduced by the deemed distributions from the account.
    (c) The pre-'86 account balance and the post-'87 account balance 
have no relevance for purposes of determining the amount includible in 
income under section 72.
    Q-3. Must the value of the account balance under a section 403(b) 
contract as of December 31, 1986 be distributed in accordance with the 
minimum distribution incidental benefit requirement?
    A-3. Distributions of the entire account balance of a section 
403(b) contract, including the value of the account balance under the 
contract or account as of December 31, 1986, must satisfy the minimum 
distribution incidental benefit requirement. However, distributions 
attributable to the value of the account balance under the contract or 
account as of December 31, 1986 is treated as satisfying the minimum 
distribution incidental benefit requirement if such distributions 
satisfy the rules in effect as of July 27, 1987, interpreting 1.401-
1(b)(1)(i).
    Q-4. Is the required minimum distribution from one section 403(b) 
contract of an employee permitted to be distributed from another 
section 403(b) contract in order to satisfy section 401(a)(9)?
    A-4. Yes. The required minimum distribution must be separately 
determined for each section 403(b) contract of an employee. However, 
such amounts may then be totaled and the total distribution taken from 
any one or more of the individual section 403(b) contracts. However, 
under this rule, only amounts in section 403(b) contracts that an 
individual holds as an employee may be aggregated. Amounts in section 
403(b) contracts that an individual holds as a beneficiary of the same 
decedent may be aggregated, but such amounts may not be aggregated with 
amounts held in section 403(b) contracts that the individual holds as 
the employee or as the beneficiary of another decedent. Distributions 
from section 403(b) contracts or accounts will not satisfy the 
distribution requirements from IRAs, nor will distributions from IRAs 
satisfy the distribution requirements from section 403(b) contracts or 
accounts.
    Par. 5. Section Sec. 1.408-8 is added to read as follows:


Sec. 1.408-8  Distribution requirements for individual retirement 
plans.

    The following questions and answers relate to the distribution 
rules for IRAs provided in sections 408(a)(6) and 408(b)(3).
    Q-1. Are individual retirement plans (IRAs) subject to the 
distribution rules provided in section 401(a)(9) and Secs. 1.401(a)(9)-
1 through 1.401(a)(9)-8 for qualified plans?
    A-1. (a) Yes. Except as otherwise provided in this section, IRAs 
are subject to the required minimum distribution rules provided in 
section 401(a)(9) and Secs. 1.401(a)(9)-1 through 1.401(a)(9)-8 for 
qualified plans. For example, whether the five year rule or the life 
expectancy rule applies to distribution after death occurring before 
the IRA owner's required beginning date will be determined in 
accordance with Sec. 1.401(a)(9)-3, the rules of Sec. 1.401(a)(9)-4 
apply for purposes of determining an IRA owner's designated 
beneficiary, the amount of the required minimum distribution required 
for each calendar year from an individual account will be determined in 
accordance with Sec. 1.401(a)(9)-5, and whether annuity payments from 
an individual retirement annuity satisfy section 401(a)(9) will be 
determined under Sec. 1.401(a)(9)-6. For this purpose the term IRA 
means an individual retirement account or annuity described in section 
408(a) or (b).
    (b) For purposes of applying the required minimum distribution 
rules in Secs. 1.401(a)(9)-1 through 1.401(a)(9)-8 for qualified plans, 
the IRA trustee, custodian, or issuer is treated as the plan 
administrator, and the IRA owner is substituted for the employee
    Q-2. Are employer contributions under a simplified employee pension 
(defined in section 408(k)) or a SIMPLE IRA (defined in section 408(p)) 
treated as contributions to an IRA?
    A-2. Yes. IRAs that receive employer contributions under a 
simplified employee pension (defined in section 408(k)) or a SIMPLE 
plan (defined in section 408(p)) are treated as IRAs for purposes of 
section 401(a) and are, therefore, subject to the distribution rules in 
this section.
    Q-3. In the case of distributions from an IRA, what does the term 
required beginning date mean?
    A-3. In the case of distributions from an IRA, the term required 
beginning date means April 1 of the calendar year following the 
calendar year in which the individual attains age 70\1/2\.
    Q-4. When is the amount of a distribution from a IRA not eligible 
for rollover because the amount is a required minimum distribution?
    A-4. The amount of a distribution that is a required minimum 
distribution from an IRA and thus not eligible for rollover is 
determined in the same manner as provided in Q&A-7 of Sec. 1.402(c)-2 
for distributions from qualified plans. For example, if a required 
minimum distribution is required for a calendar year, the amounts 
distributed during a calendar year from an IRA are treated as required 
minimum distributions under section 401(a)(9) to the extent that the 
total required minimum distribution for the year under section 
401(a)(9) for that IRA has not been satisfied. This requirement may be 
satisfied by a distribution from the IRA or, as permitted under A-8 of 
this section, from another IRA.

[[Page 3951]]

    Q-5. May an individual's surviving spouse elect to treat such 
spouse's entire interest as a beneficiary in an individual's IRA upon 
the death of the individual (or the remaining part of such interest if 
distribution to the spouse has commenced) as the spouse's own account?
    A-5. (a) The surviving spouse of an individual may elect in the 
manner described in paragraph (b) of this A-5 to treat the spouse's 
entire interest as a beneficiary in an individual's IRA (or the 
remaining part of such interest if distribution thereof has commenced 
to the spouse) as the spouse's own IRA. This election is permitted to 
be made at any time after the distribution of the required minimum 
amount for the account for the calendar year containing the 
individual's date of death. In order to make this election, the spouse 
must be the sole beneficiary of the IRA and have an unlimited right to 
withdrawal amounts from the IRA. This requirement is not satisfied if a 
trust is named as beneficiary of the IRA even if the spouse is the sole 
beneficiary of the trust. If the surviving spouse makes such an 
election, the surviving spouse's interest in the IRA would then be 
subject to the distribution requirements of section 401(a)(9)(A) 
applicable to the spouse as the IRA owner rather than those of section 
401(a)(9)(B) applicable to the surviving spouse as the decedent IRA 
owner's beneficiary. Thus, the required minimum distribution for the 
year of the election and each subsequent year would be determined under 
section 401(a)(9)(A) with the spouse as IRA owner and not section 
401(a)(9)(B).
    (b) The election described in paragraph (a) of this A-5 is made by 
the surviving spouse redesignating the account as the account in the 
name of the surviving spouse as IRA owner rather than as beneficiary. 
Alternatively, a surviving spouse eligible to make the election is 
deemed to have made the election if, at any time, either of the 
following occurs:
    (1) Any required amounts in the account (including any amounts that 
have been rolled over or transferred, in accordance with the 
requirements of section 408(d)(3)(A)(i), into an individual retirement 
account or individual retirement annuity for the benefit of such 
surviving spouse) have not been distributed within the appropriate time 
period applicable to the surviving spouse as beneficiary under section 
401(a)(9)(B); or
    (2) Any additional amounts are contributed to the account (or to 
the account or annuity to which the surviving spouse has rolled such 
amounts over, as described in (1) above) which are subject, or deemed 
to be subject, to the distribution requirements of section 
401(a)(9)(A).
    (c) The result of an election described in paragraph (b) of this A-
5 is that the surviving spouse shall then be considered the IRA owner 
for whose benefit the trust is maintained for all purposes under the 
Code (e.g. section 72(t)).
    Q-6. How is the benefit determined for purposes of calculating the 
required minimum distribution from an IRA?
    A-6. For purposes of determining the required minimum distribution 
required to be made from an IRA in any calendar year, the account 
balance of the IRA as of the December 31 of the calendar year 
immediately preceding the calendar year for which distributions are 
being made will be substituted in A-3 of Sec. 1.401(a)(9)-5 for the 
account of the employee. The account balance as of December 31 of such 
calendar year is the value of the IRA upon close of business on such 
December 31. However, for purposes of determining the required minimum 
distribution for the second distribution calendar year for an 
individual, the account balance as of December 31 of such calendar year 
must be reduced by any distribution (as described in A-3(c)(2) of 
Sec. 1.401(a)(9)-5) made to satisfy the required minimum distribution 
requirements for the individual's first distribution calendar year 
after such date.
    Q-7. What rules apply in the case of a rollover to an IRA of an 
amount distributed by a qualified plan or another IRA?
    A-7. If the surviving spouse of an employee rolls over a 
distribution from a qualified plan, such surviving spouse may elect to 
treat the IRA as the spouse's own IRA in accordance with the provisions 
in A-5 of this section. In the event of any other rollover to an IRA of 
an amount distributed by a qualified plan or another IRA, the rules in 
Sec. 1.401(a)(9)-3 will apply for purposes of determining the account 
balance for the receiving IRA and the required minimum distribution 
from the receiving IRA. However, because the value of the account 
balance is determined as of December 31 of the year preceding the year 
for which the required minimum distribution is being determined and not 
as of a valuation date in the preceding year, the account balance of 
the receiving IRA need not be adjusted for the amount received as 
provided in A-2 of Sec. 1.401(a)(9)-7 in order to determine the 
required minimum distribution for the calendar year following the 
calendar year in which the amount rolled over is received, unless the 
amount received is deemed to have been received in the immediately 
preceding year, pursuant to A-2 of Sec. 1.401(a)(9)-7. In that case, 
for purposes of determining the required minimum distribution for the 
calendar year in which such amount is actually received, the account 
balance of the receiving IRA as of December 31 of the preceding year 
must be adjusted by the amount received in accordance with A-2 of 
Sec. 1.401(a)(9)-7.
    Q-8. What rules apply in the case of a transfer from one IRA to 
another?
    A-8. In the case of a transfer from one IRA to another IRA, the 
rules in A-3 or A-4 of Sec. 1.401(a)(9)-7 will apply for purposes of 
determining the account balance of, and the required minimum 
distribution from, the IRAs involved. Thus, the transferor IRA must 
distribute in the year of the transfer any amount required determined 
without regard to the transfer. For purposes of determining the account 
balance of the transferee IRA and the transferor IRA, the account 
balance need not be adjusted for the amount transferred as provided in 
A-4(a) of Sec. 1.401(a)(9)-7 in order to calculate the required minimum 
distribution for the calendar year following the calendar year of the 
transfer, because the account balance is determined as of December 31 
of the calendar year immediately preceding the calendar year for which 
the required minimum distribution is being determined.
    Q-9. Is the required minimum distribution from one IRA of an owner 
permitted to distributed from another IRA in order to satisfy section 
401(a)(9).
    A-9. Yes. The required minimum distribution must be calculated 
separately for each IRA. However, such amounts may then be totaled and 
the total distribution taken from any one or more of the individual 
IRAs. However, under this rule, only amounts in IRAs that an individual 
holds as the IRA owner may be aggregated. Amounts in IRAs that an 
individual holds as a beneficiary of the same decedent may be 
aggregated, but such amounts may not be aggregated with amounts held in 
IRAs that the individual holds as the IRA owner or as the beneficiary 
of another decedent. Distributions from section 403(b) contracts or 
accounts will not satisfy the distribution requirements from IRAs, nor 
will distributions from IRAs satisfy the distribution requirements from 
section 403(b) contracts or accounts. Distributions from Roth IRAs 
(defined in section 408A) will not satisfy the distribution 
requirements applicable to IRAs or section 403(b) accounts or contracts 
and distributions from IRAs or section 403(b) contracts or accounts 
will not

[[Page 3952]]

satisfy the distribution requirements from Roth IRAs.
    Q-10. Is the trustee of an IRA required to report the amount that 
is required to be distributed from that IRA?
    A-10. Yes. The trustee of an IRA is required to report to the 
Internal Revenue Service and to the IRA owner the amount required to be 
distributed from the IRA for each calendar year at the time and in the 
manner prescribed in the instructions to the applicable Federal tax 
forms, as well as any additional information as required by such forms 
or such instructions.

PART 54--PENSION EXCISE TAXES

    Par. 6. The authority citation for part 54 is amended by adding the 
following citation to read as follows:

    Authority: 26 U.S.C. 7805 * * *.

    Sec. 54.4974-2 is also issued under 26 U.S.C. 4974.

    Par. 7. Section after Sec. 54.4974-2 is added to read as follows:


Sec. 54.4974-2  Excise tax on accumulations in qualified retirement 
plans.

    Q-1. Is any tax imposed on a payee under any qualified retirement 
plan or any eligible deferred compensation plan (as defined in section 
457(b)) to whom an amount is required to be distributed for a taxable 
year if the amount distributed during the taxable year is less than the 
required minimum distribution?
    A-1. Yes. If the amount distributed to a payee under any qualified 
retirement plan or any eligible deferred compensation plan (as defined 
in section 457(b)) for a calendar year is less than the required 
minimum distribution for such year, an excise tax is imposed on such 
payee under section 4974 for the taxable year beginning with or within 
the calendar year during which the amount is required to be 
distributed. The tax is equal to 50 percent of the amount by which such 
required minimum distribution exceeds the actual amount distributed 
during the calendar year. Section 4974 provides that this tax shall be 
paid by the payee. For purposes of section 4974, the term required 
minimum distribution means the required minimum distribution amount 
required to be distributed pursuant to section 401(a)(9), 403(b)(10), 
408(a)(6), 408(b)(3), or 457(d)(2), as the case may be, and the 
regulations thereunder. Except as otherwise provided in Q&A-6, the 
required minimum distribution for a calendar year is the required 
minimum distribution amount required to be distributed during the 
calendar year. Q&A-6 provides a special rule for amounts required to be 
distributed by an employee's (or individual's) required beginning date.
    Q-2. For purposes of section 4974, what is a qualified retirement 
plan?
    A-2. For purposes of section 4974, each of the following is a 
qualified retirement plan--
    (a) A plan described in section 401(a) which includes a trust 
exempt from tax under section 501(a);
    (b) An annuity plan described in section 403(a);
    (c) An annuity contract, custodial account, or retirement income 
account described in section 403(b);
    (d) An individual retirement account described in section 408(a);
    (e) An individual retirement annuity described in section 408(b); 
or
    (f) Any other plan, contract, account, or annuity that, at any 
time, has been treated as a plan, account, or annuity described in (a) 
through (e) of this A-2, whether or not such plan, contract, account, 
or annuity currently satisfies the applicable requirements for such 
treatment.
    Q-3. If a payee's interest under a qualified retirement plan is in 
the form of an individual account, how is the required minimum 
distribution for a given calendar year determined for purposes of 
section 4974?
    A-3. (a) General rule. If a payee's interest under a qualified 
retirement plan is in the form of an individual account and 
distribution of such account is not being made under an annuity 
contract purchased in accordance with A-4 of Sec. 1.401(a)(9)-6, the 
amount of the required minimum distribution for any calendar year for 
purposes of section 4974 is the required minimum distribution amount 
required to be distributed for such calendar year in order to satisfy 
the required minimum distribution requirements in Sec. 1.401(a)(9)-5 as 
provided in the following (whichever is applicable)--
    (1) Section 401(a)(9) and Secs. 1.401(a)(9)-1 through 1.401(a)(9)-8 
in the case of a plan described in section 401(a) which includes a 
trust exempt under section 501(a) or an annuity plan described in 
section 403(a));
    (2) Section 403(b)(10) and Sec. 1.403(b)-2 (in the case of an 
annuity contract, custodial account, or retirement income account 
described in section 403(b)); or
    (3) Section 408(a)(6) or (b)(3) and Sec. 1.408-8 (in the case of an 
individual retirement account or annuity described in section 408(a) or 
(b)).
    (b) Default provisions. Unless otherwise provided under the 
qualified retirement plan (or, if applicable, the governing instrument 
of the qualified retirement plan), the default provisions in A-4(a) of 
Sec. 1.401(a)(9)-3 apply in determining the required minimum 
distribution for purposes of section 4974.
    (c) Five year rule. If the five-year rule in section 
401(a)(9)(B)(ii) applies to the distribution to a payee, no amount is 
required to be distributed for any calendar year to satisfy the 
applicable enumerated section in paragraph (a) of this A-3 until the 
calendar year which contains the date five years after the date of the 
employee's death. For the calendar year which contains the date five 
years after the employee's death, the required minimum distribution 
amount required to be distributed to satisfy the applicable enumerated 
section is the payee's entire remaining interest in the qualified 
retirement plan.
    Q-4. If a payee's interest in a qualified retirement plan is being 
distributed in the form of an annuity, how is the amount of the 
required minimum distribution determined for purposes of section 4974?
    A-4. If a payee's interest in a qualified retirement plan is being 
distributed in the form of an annuity (either directly from the plan, 
in the case of a defined benefit plan, or under an annuity contract 
purchased from an insurance company), the amount of the required 
minimum distribution for purposes of section 4974 will be determined as 
follows:
    (a) Permissible annuity distribution option. A permissible annuity 
distribution option is an annuity contract (or, in the case of annuity 
distributions from a defined benefit plan, a distribution option) which 
specifically provides for distributions which, if made as provided, 
would for every calendar year equal or exceed the required minimum 
distribution amount required to be distributed to satisfy the 
applicable section enumerated in paragraph (a) of A-2 of this section 
for every calendar year. If the annuity contract (or, in the case of 
annuity distributions from a defined benefit plan, a distribution 
option) under which distributions to the payee are being made is a 
permissible annuity distribution option, the required minimum 
distribution for a given calendar year will equal the amount which the 
annuity contract (or distribution option) provides is to be distributed 
for that calendar year.
    (b) Impermissible annuity distribution option. An impermissible 
annuity distribution option is an annuity contract (or, in the case of 
annuity distributions from a defined benefit plan, a distribution 
option) under which distributions to the payee are being made that 
specifically provides for

[[Page 3953]]

distributions which, if made as provided, would for any calendar year 
be less than the required minimum distribution amount required to be 
distributed to satisfy the applicable section enumerated in paragraph 
(a) of A-2 of this section. If the annuity contract (or, in the case of 
annuity distributions from a defined benefit plan, the distribution 
option) under which distributions to the payee are being made is an 
impermissible annuity distribution option, the required minimum 
distribution for each calendar year will be determined as follows:
    (1) If the qualified retirement plan under which distributions are 
being made is a defined benefit plan, the required minimum distribution 
amount required to be distributed each year will be the amount which 
would have been distributed under the plan if the distribution option 
under which distributions to the payee were being made was the 
following permissible annuity distribution option:
    (i) In the case of distributions commencing before the death of the 
employee, if there is a designated beneficiary under the impermissible 
annuity distribution option for purposes of section 401(a)(9), the 
permissible annuity distribution option is the joint and survivor 
annuity option under the plan for the lives of the employee and the 
designated beneficiary which provides for the greatest level amount 
payable to the employee determined on an annual basis. If the plan does 
not provide such an option or there is no designated beneficiary under 
the impermissible distribution option for purposes of section 
401(a)(9), the permissible annuity distribution option is the life 
annuity option under the plan payable for the life of the employee in 
level amounts with no survivor benefit.
    (ii) In the case of distributions commencing after the death of the 
employee, if there is a designated beneficiary under the impermissible 
annuity distribution option for purposes of section 401(a)(9), the 
permissible annuity distribution option is the life annuity option 
under the plan payable for the life of the designated beneficiary in 
level amounts. If there is no designated beneficiary, the five-year 
rule in section 401(a)(9)(B)(ii) applies. See paragraph (b)(3) of this 
A-4. The determination of whether or not there is a designated 
beneficiary and the determination of which designated beneficiary's 
life is to be used in the case of multiple beneficiaries will be made 
in accordance with Sec. 1.401(a)(9)-4 and A-7 of Sec. 1.401(a)(9)-5. If 
the defined benefit plan does not provide for distribution in the form 
of the applicable permissible distribution option, the required minimum 
distribution for each calendar year will be an amount as determined by 
the Commissioner.
    (2) If the qualified retirement plan under which distributions are 
being made is a defined contribution plan and the impermissible annuity 
distribution option is an annuity contract purchased from an insurance 
company, the required minimum distribution amount required to be 
distributed each year will be the amount which would have been 
distributed in the form of an annuity contract under the permissible 
annuity distribution option under the plan determined in accordance 
with paragraph (b)(1) of this A-4 for defined benefit plans. If the 
defined contribution plan does not provide the applicable permissible 
annuity distribution option, the required minimum distribution for each 
calendar year will be the amount which would have been distributed 
under an annuity described below in paragraph (b)(2)(i) or (ii) of this 
A-4 purchased with the employee's or individual's account used to 
purchase the annuity contract which is the impermissible annuity 
distribution option.
    (i) In the case of distributions commencing before the death of the 
employee, if there is a designated beneficiary under the impermissible 
annuity distribution option for purposes of section 401(a)(9), the 
annuity is a joint and survivor annuity for the lives of the employee 
and the designated beneficiary which provides level annual payments and 
which would have been a permissible annuity distribution option. 
However, the amount of the periodic payment which would have been 
payable to the survivor will be the applicable percentage under the 
table in A-2(b) of Sec. 1.401(a)(9)-6 of the amount of the periodic 
payment which would have been payable to the employee or individual. If 
there is no designated beneficiary under the impermissible distribution 
option for purposes of section 401(a)(9), the annuity is a life annuity 
for the life of the employee with no survivor benefit which provides 
level annual payments and which would have been a permissible annuity 
distribution option.
    (ii) In the case of a distribution commencing after the death of 
the employee, if there is a designated beneficiary under the 
impermissible annuity distribution option for purposes of section 
401(a)(9), the annuity option is a life annuity for the life of the 
designated beneficiary which provides level annual payments and which 
would have been permissible annuity distribution option. If there is no 
designated beneficiary, the five year rule in section 401(a)(9)(B)(ii) 
applies. See paragraph (b)(3) of this A-4. The amount of the payments 
under the annuity contract will be determined using the interest rate 
and actuarial tables prescribed under section 7520 determined using the 
date determined under A-3 of 1.401(a)(9)-3 when distributions are 
required to commence and using the age of the beneficiary as of the 
beneficiary's birthday in the calendar year that contains that date. 
The determination of whether or not there is a designated beneficiary 
and the determination of which designated beneficiary's life is to be 
used in the case of multiple beneficiaries will be made in accordance 
with Sec. 1.401(a)(9)-3 and A-7 of Sec. 1.401(a)(9)-5.
    (3) If the five-year rule in section 401(a)(9)(B)(ii) applies to 
the distribution to the payee under the contract (or distribution 
option), no amount is required to be distributed to satisfy the 
applicable enumerated section in paragraph (a) of this A-4 until the 
calendar year which contains the date five years after the date of the 
employee's death. For the calendar year which contains the date five 
years after the employee's death, the required minimum distribution 
amount required to be distributed to satisfy the applicable enumerated 
section is the payee's entire remaining interest in the annuity 
contract (or under the plan in the case of distributions from a defined 
benefit plan).
    Q-5. If there is any remaining benefit with respect to an employee 
(or IRA owner) after any calendar year in which the entire remaining 
benefit is required to be distributed under section, what is the amount 
of the required minimum distribution for each calendar year subsequent 
to such calendar year?
    A-5. If there is any remaining benefit with respect to an employee 
(or IRA owner) after the calendar year in which the entire remaining 
benefit is required to be distributed, the required minimum 
distribution for each calendar year subsequent to such calendar year is 
the entire remaining benefit.
    Q-6. If a payee has an interest under an eligible deferred 
compensation plan (as defined in section 457(b)), how is the required 
minimum distribution for a given taxable year of the payee determined 
for purposes of section 4974?
    A-6. If a payee has an interest under an eligible deferred 
compensation plan (as defined in section 457(b)), the required minimum 
distribution for a given taxable year of the payee

[[Page 3954]]

determined for purposes of section 4974 is determined under section 
457(d).
    Q-7. With respect to which calendar year is the excise tax under 
section 4974 imposed in the case in which the amount not distributed is 
an amount required to be distributed by April 1 of a calendar year (by 
the employee's or individual's required beginning date)?
    A-7. In the case in which the amount not paid is an amount required 
to be paid by April 1 of a calendar year, such amount is a required 
minimum distribution for the previous calendar year, i.e., for the 
employee's or the individual's first distribution calendar year. 
However, the excise tax under section 4974 is imposed for the calendar 
year containing the last day by which the amount is required to be 
distributed, i.e., the calendar year containing the employee's or 
individual's required beginning date, even though the preceding 
calendar year is the calendar year for which the amount is required to 
be distributed. Pursuant to A-2 of Sec. 1.401(a)(9)-5, amounts 
distributed in the employee's or individual's first distribution 
calendar year will reduce the amount required to be distributed in the 
next calendar year by the employee's or individual's required beginning 
date. There is also a required minimum distribution for the calendar 
year which contains the employee's required beginning date. Such 
distribution is also required to be made during the calendar year which 
contains the employee's required beginning date.
    Q-8. Are there any circumstances when the excise tax under section 
4974 for a taxable year may be waived?
    A-8. (a) Reasonable cause. The tax under section 4974(a) may be 
waived if the payee described in section 4974(a) establishes to the 
satisfaction of the Commissioner the following--
    (1) The shortfall described in section 4974(a) in the amount 
distributed in any taxable year was due to reasonable error; and
    (2) Reasonable steps are being taken to remedy the shortfall.
    (b) Automatic Waiver. The tax under section 4974 will be 
automatically waived, unless the Commissioner determines otherwise, 
if--
    (1) The payee described in section 4974(a) is an individual who is 
the sole beneficiary and whose required minimum distribution amount for 
a calendar year is determined under the life expectancy rule described 
in Sec. 1.401(a)(9)-3 A-3 in the case of an employee's death before the 
employee's required beginning date; and
    (2) The employee's or individual's entire benefit to which that 
beneficiary is entitled is distributed by the end of the fifth calendar 
year following the calendar year that contains the employee's date of 
death.

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
[FR Doc. 01-304 Filed 1-12-01; 8:45 am]
BILLING CODE 4830-01-P